Multiple-Choice Questions 1. Which method results in a more realistic amount for income because it matches the

Question:

Multiple-Choice Questions

1. Which method results in a more realistic amount for income because it matches the most current costs against revenue?

a. FIFO

b. LIFO

c. Average cost

d. Specific identification

2. Which of the following statements regarding the lower of cost or market (LCM) rule is true?

a. The LCM rule is an application of the historical cost principle.

b. If a company uses the LCM rule, there is no need to use a cost flow assumption such as FIFO, LIFO, or average cost.

c. When the market value of inventory is above the historical cost of inventory, an adjustment is made to increase inventory to its market value and increase income.

d. When the replacement cost of inventory drops below the historical cost of inventory, an adjustment is made to decrease inventory to its market value and decrease income.

3. Which of the following statements is true with regard to the gross profit ratio?

1. An increase in the gross profit rate may indicate that a company is efficiently managing its inventory.

2. An increase in cost of goods sold would increase the gross profit rate (assuming sales remain constant).

3. An increase in selling expenses would lower the gross profit rate.

a. 1

b. 2

c. 1 and 2

d. 1 and 3

4. An increasing inventory turnover ratio indicates that:

a. A company is having trouble selling its inventory.

b. A company may be holding too much inventory.

c. A company has reduced the time it takes to sell inventory.

d. A company has sold inventory at a higher profit.

5. Ignoring taxes, if a company understates its ending inventory by $10,000 in the current year:

a. Assets for the current year will be overstated by $10,000.

b. Cost of goods sold for the current year will be understated by $10,000.

c. Retained earnings for the current year will be unaffected.

d. Net income for the subsequent year will be overstated by $10,000.

6. Which of the following statements is true for a company that uses a periodic inventory system?

a. The purchase of inventory requires a debit to Merchandise Inventory.

b. The payment of a purchase within the discount period requires a credit to Purchase Discount.

c. The return of defective inventory requires a debit to Purchase Returns and Allowances.

d. Any amounts paid for freight are debited to Merchandise Inventory.

Multiple-Choice Questions 1. Which method results in a more real

7. If Morgan uses a periodic inventory system, what is the cost of goods sold under FIFO at April 30?
a. $24,600
b. $29,200
c. $38,400
d. $43,000

8. If Morgan uses a periodic inventory system, what is the cost of ending inventory under LIFO at April 30?
a. $24,600
b. $29,200
c. $38,400
d. $43,000

9. If Morgan uses a periodic inventory system, what is the cost of ending inventory under average cost at April 30? (Use four decimal places for per unit calculations and round all other numbers to the nearest dollar.)
a. $27,040
b. $28,655
c. $38,945
d.$40,560

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,... Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...