1. Which inventory costing method generally results in less current taxes paid by the company?
a. LIFO
b. FIFO
c. Moving Average
d. All methods result in the same taxes paid
2. Which inventory costing method should a grocer use?
a. LIFO
b. FIFO
c. Moving Average
d. A grocer can use any of the inventory costing methods
3. A company that uses the FIFO costing method reports cost of goods sold for the year of $10,000. Had it used the LIFO method, cost of goods sold would have been $12,000. How much in taxes could the company have deferred in the current year if it had used the LIFO method? Assume a 30% tax rate.
a. $2,000
b. $600
c. $1,400
d. Cannot tell from the given information
4. A company overstates its ending inventory by $2,000. Which of the following is true concerning the effect of this error on cost of goods sold in the year of the error?
a. Cost of goods sold will be unaffected
b. Cost of goods sold will be understated
c. Cost of goods sold will be overstated
d. Cannot tell from given information
5. A company understates its ending inventory by $2,000. Which of the following is true concerning the effect of this error on cost of goods sold in the year after the error (assuming no other errors)?
a. Cost of goods sold will be unaffected
b. Cost of goods sold will be understated
c. Cost of goods sold will be overstated
d. Cannot tell from given information
6. A counterbalancing inventory error will result in:
a. an overstatement of income.
b. an understatement of income.
c. both an overstatement and understatement of annual income that offset each other such that total net income over the two years is correct.
d. cannot tell from given information.
7. Suppose that Lee Enterprises usually generates a 25% gross profit on sales. If Lee's annual sales are $100,000, what is Lee's estimated cost of goods sold using the gross profit method?
a. $0
b. $25,000
c. $75,000
d. $100,000
8. Suppose that Lee Enterprises usually generates a 40% gross profit on sales. If Lee's annual sales are $130,000 and cost of goods available for sale is $90,000, what is Lee's estimated ending inventory using the gross profit method?
a. $38,000
b. $90,000
c. $78,000
d. $12,000