Accounting II True/False Test A

False

A business may fail if it does not have enough inventory on hand, but it will not fail if it has an excess of inventory.

False

A periodic inventory maintains a continuous record of merchandise inventory increases and decreases.

True

Comparing inventory costing methods in times of rising prices, the last-in, first-out method will result in the highest cost of merchandise sold.

False

Each year, a business uses the inventory costing method that results in the most favorable net income.

False

FOB shipping point means that the title to the goods passes to the buyer when the vendor delivers the goods at the buyer's place of business.

False

If an inventory is taken once each year, the business must be using the perpetual inventory method.

True

If ending inventory is overstated, net income will be overstated.

True

If the ending inventory is understated, retained earnings will be understated.

True

International financial reporting standards do not allow the use of the last-in, first-out method.

False

Most businesses have a merchandise inventory turnover ratio close to 12, since they offer terms of n/30 to their customers.

False

The consignor owns the goods on consignment and is responsible for selling the goods.

True

The cost of goods sold calculated using the weighted-average method will always be between the amounts calculated using the LIFO and FIFO methods.

True

The cost of merchandise available for sale consists of the beginning merchandise inventory and net purchases.

True

To determine the inventory cost using the lower of cost or market, a business compares the cost of inventory using its normal inventory costing method (FIFO, LIFO, or weighted-average) to the current replacement cost of the inventory. The inventory is valued at whichever cost is lower.

False

To prepare monthly interim financial statements, a business should take the inventory monthly.

False

To use the retail method of estimating the inventory, the cost of purchases, sales, and the beginning inventory must be known. In addition, the retail price of items sold must be known.

False

Using the FIFO method, the units from the beginning inventory will be the first units included in the cost of the ending merchandise inventory.

False

Using the LIFO method, the units from the beginning inventory will be the first units included in the cost of merchandise sold.