Multiple Choice Question
1. Consider the following information: ending inventory, $24,000; sales, $250,000; beginning inventory, $20,000; selling and administrative expenses, $70,000; and purchases, $90,000. What is cost of goods sold?
a. $86,000
b. $94,000
c. $16,000
d. $84,000
2. The inventory costing method selected by a company will affect
a. The balance sheet.
b. The income statement.
c. The statement of retained earnings.
d. All of the above.
3. Which of the following is not a component of the cost of inventory?
a. Administrative overhead
b. Direct labor
c. Raw materials
d. Factory overhead
4. Consider the following information: beginning inventory 20 units @ $20 per unit; first purchase 35 units @ $22 per unit; second purchase 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the FIFO method of inventory costing?
a. $1,000
b. $1,060
c. $1,180
d. $1,200
5. Consider the following information: beginning inventory 20 units @ $20 per unit; first purchase 35 units @ $22 per unit; second purchase 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the LIFO method of inventory costing?
a. $1,000
b. $1,060
c. $1,180
d. $1,200
6. An increasing inventory turnover ratio
a. Indicates a longer time span between the ordering and receiving of inventory.
b. Indicates a shorter time span between the ordering and receiving of inventory.
c. Indicates a shorter time span between the purchase and sale of inventory.
d. Indicates a longer time span between the purchase and sale of inventory.
7. If the ending balance in accounts payable decreases from one period to the next, which of the following is true?
a. Cash payments to suppliers exceeded current period purchases.
b. Cash payments to suppliers were less than current period purchases.
c. Cash receipts from customers exceeded cash payments to suppliers.
d. Cash receipts from customers exceeded current period purchases.
8. Which of the following regarding the lower of cost or market rule for inventory are true?
(1) The lower of cost or market rule is an example of the historical cost principle.
(2) When the replacement cost of inventory drops below the cost shown in the financial records, net income is reduced.
(3) When the replacement cost of inventory drops below the cost shown in the financial records, total assets are reduced.
a. (1)
b. (2)
c. (2) and (3)
d. All three
9. Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet?
a. FIFO
b. Average cost
c. LIFO
d. Specific identification
10. Which of the following is false regarding a perpetual inventory system?
a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis.
b. The balance in the inventory account is updated with each inventory purchase and sale transaction.
c. Cost of goods sold is increased as sales are recorded.
d. The account Purchases is not used as inventory is acquired.