Module 8

If ending inventory is too big which of the following statements is true? Cost of Goods Sold is too big and income is too big Cost of Goods Sold is too small and income is too big Cost of Goods Sold is too small and income is too small Cost of Goods Sold is too big and income is too small

Cost of Goods Sold is too small and income is too big

The inventory costing system that charges inventory to cost of goods sold in chronological order of its purchase is referred to as: FIFO LIFO specific identification periodic identification

FIFO

The inventory method that results in the highest net income during periods of rising prices is LIFO FIFO Average Specific identification

FIFO

Under which method are the most recent costs included in ending inventory? LIFO FIFO Average Specific identification

FIFO

In times of rising prices, ______ generally result(s) in the ______ cost of goods sold. LIFO and FIFO, same FIFO, higher LIFO, lower FIFO, lower

FIFO, lower

Which of the following statements about LIFO is false? It results in a higher cost of goods sold during periods of rising prices. If inventory declines, it will result in a matching of current revenues and old costs The cost of ending inventory will probably be very different from current replacement cost. Firms that use LIFO run the risk of inventory obsolescence because they are keeping old goods on hand.

Firms that use LIFO run the risk of inventory obsolescence because they are keeping old goods on hand

In which type of inventory would you use the periodic method? Low volume of high cost inventory High volume of low cost inventory

High volume of low cost inventory

What is the reorder point? The day of the month when the company needs to order more inventory Inventory level at which we need to place another order The time at which the customer orders more good None of the above

Inventory level at which we need to place another order

Under which method are the most recent costs included in cost of goods sold? LIFO FIFO Average Specific identification

LIFO

In times of rising prices, ______ generally result(s) in the ______ ending inventory. LIFO and FIFO, same LIFO, higher FIFO, lower LIFO, lower

LIFO, lower

In which type of inventory would you use the perpetual method? Low volume of high cost inventory High volume of low cost inventory

Low volume of high cost inventory

During the current year, ending inventory was higher under the LIFO method than under the FIFO method. Which of the following statements about price changes is true? Prices were unchanged Prices were decreasing. Prices were increasing. Unable to determine from the information given

Prices were decreasing

In a periodic inventory system, the journal entry to record the sale of merchandise on account would include a: debit to Cost of Goods Sold credit to Accounts Payable debit to Inventory no entry involving Inventory or Cost of Goods Sold

no entry involving Inventory or Cost of Goods Sold

In a perpetual inventory system that uses the gross method which of the following is true? When a discount is taken the Purchase Discount account is credited. The Accounts Payable account is debited for the cash paid. The Inventory account is reduced when the discount is taken. The Purchase Discount Lost account is debited when the discount is not taken.

The Inventory account is reduced when the discount is taken

What is the economic order quantity? The ideal amount of inventory to order at a time to minimize ordering and carrying costs The cost of ordering inventor How much money are we saving by ordering inventory How much it costs to order inventory

The ideal amount of inventory to order at a time to minimize ordering and carrying costs

Which of the following is not an advantage of having inventory? Meet Customer demand To hedge against price increases. Warehousing costs Smooth production scheduling.

Warehousing costs

Which of the following is not an advantage of LIFO over FIFO? lower income taxes better inventory figure on balance sheet better matching of revenues and costs on the income statement cost of goods sold better approximates current replacement cost

better inventory figure on balance sheet

In a perpetual inventory system, the journal entry to record the sale of merchandise on account would include a: debit to Cost of Goods Sold credit to Accounts Payable debit to Inventory credit to Cash

debit to Cost of Goods Sold

In a perpetual inventory system, if the terms of sale are FOB shipping point the journal entry to record the payment of freight charges on purchased merchandise includes a: debit to Inventory credit to Freight Out credit to Accounts Payable debit to Cost of Goods Sold

debit to Inventory

In a perpetual inventory system, the journal entry to record the purchase of merchandise on account includes a: credit to Cash debit to Purchases debit to Inventory credit to Accounts Receivable

debit to inventory