Question 1

A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, it should choose to show it at $100,000.

True

False

Question 2

Ending inventory equals the cost of goods available for sale less beginning inventory.

True

False

Question 3

First Street Merchandisers has total cost of goods sold of $54,500, total beginning inventory of $18,500, and total ending inventory of $22,100. Cost of goods available for sale is $73,000.

True

False

Question 4

In a period of rising costs, the first-in, first-out (FIFO) method results in a lower cost of goods sold and a higher gross profit than the last-in, first-out (LIFO) method.

True

False

Question 5

The lower-of-cost-or-market rule demonstrates accounting conservatism in action.

True

False

Question 6

In computing the lower-of-cost-or-market, market value generally means the selling price.

True

False

Question 7

An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.

True

False

Question 8

An inventory error cancels out after two periods.

True

False

Question 9

Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period.

True

False

Question 10

Companies try to manage their inventory levels such that they will have just enough inventory to meet customer demand without investing large amounts of money in inventory or having it sit on the shelves gathering dust.

True

False