Chapter 7

Which of the following statements are true regarding Cost of Goods Sold? i. Cost of Goods Sold represents the costs that a company incurred to purchase or produce inventory in the current period. ii. Cost of Goods Sold is an expense on the income statement. iii. Cost of Goods Sold is affected by the inventory method selected by a company (FIFO, LIFO, etc.) a. (i) only b. (ii) and (iii) c. (ii) only d. All of the above.

b. (ii) and (iii)

Which of the following correctly expresses the cost of goods sold equation, as used in a periodic system? a. BI + CGS − P = EI b. BI + P − EI = CGS c. BI + P − CGS = EI d. BI + EI − P = CGS

b. BI + P - EI = CGS

In which of the following situations is an LCM/NRV write-down most likely required? a. Increasing inventory turnover ratio, decreasing gross profit percentage. b. Decreasing inventory turnover ratio, decreasing gross profit percentage. c. Increasing inventory turnover ratio, increasing gross profit percentage. d. Decreasing inventory turnover ratio, increasing gross profit percentage.

b. Decreasing inventory turnover ratio, decreasing gross profit percentage.

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

c. Indicates a shorter time span between the purchase and sale of inventory.

Which inventory method provides a better matching of current costs with sales revenue on the income statement but also results in older values being reported for inventory on the balance sheet? a. FIFO b. Weighted Average c. LIFO d. Specific Identification

c. LIFO

Which of the following regarding the lower of cost or market/net realizable value rule for inventory are true? i. When the value of inventory increases above the original cost of inventory shown in the financial records, the inventory should be increased to that higher value. ii. When the value of inventory drops below the original cost of inventory shown in the financial records, net income is reduced. iii. When the value of inventory drops below the original cost of inventory shown in the financial records, total assets are reduced. a. (i) only b. (ii) only c. (ii) and (iii) d. All of the above.

c.(ii) and (iii)

The inventory costing method selected by a company can affect a. The balance sheet. b. The income statement. c. The statement of retained earnings. d. All of the above.

d. All of the above

If costs are rising, which of the following will be true? a. The cost of goods sold will be greater if LIFO is used rather than the weighted average. b. The cost of ending inventory will be greater if FIFO is used rather than LIFO. c. The gross profit will be greater if FIFO is used rather than LIFO. d. All of the above is true.

d. All of the above is true.

Which of the following is not a name for a specific type of inventory? a. Finished goods. b. Merchandise inventory. c. Raw materials. d. Goods available for sale.

d. Goods available for sale

A New York bridal dress designer that makes high-end custom wedding dresses and needs to know the exact cost of each dress most likely uses which inventory costing method? a. FIFO b. LIFO c. Weighted Average d. Specific Identification

d. Specific Identification