chapter 6 review

Which of the following statements is true regarding inventory cost flow assumptions? A. A company may use more than one costing method concurrently. B. A company must comply with the method specified by industry standards. C. A company must use the same method for domestic and foreign operations. D. A company may never change its inventory costing method once it has chosen a method.

A. A company may use more than one costing method concurrently.

If goods in transit are shipped FOB destination A. the seller has legal title to the goods until they are delivered. B. the buyer has legal title to the goods until they are delivered. C. the transportation company has legal title to the goods while the goods are in transit. D. no one has legal title to the goods until they are delivered.

A. the seller has legal title to the goods until they are delivered.

In periods of rising prices, which is an advantage of using the LIFO inventory costing method? A. Ending inventory will include latest (most recent) costs and thus be more realistic. B. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. C. Net income will be the highest and thus reflect the prosperity of the company. D. Phantom profits are reported.

B. Cost of goods sold will include latest (most recent) costs and thus will be more realistic.

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense? A. FIFO B. LIFO C. Average cost method D. Income tax expense for the period will be the same under all assumptions.

B. LIFO

Inventory costing methods place primary reliance on assumptions about the flow of A. goods. B. costs. C. resale prices. D. values.

B. costs.

Johnson Company has a high inventory turnover that has increased over the last year. All of the following statements are true regarding this situation except Johnson Company: A. is minimizing funds tied up in inventory. B. is increasing the amount of inventory on hand relative to sales. C. may be losing sales due to inventory shortages. D. has a cost of goods sold that is increasing relative to its average inventory.

B. is increasing the amount of inventory on hand relative to sales.

The factor which determines whether or not goods should be included in a physical count of inventory is A. physical possession. B. legal title. C. management's judgment. D. whether or not the purchase price has been paid.

B. legal title.

The LIFO inventory method assumes that the cost of the latest units purchased is A. the last to be allocated to cost of goods sold. B. the first to be allocated to ending inventory. C. the first to be allocated to cost of goods sold. D. not allocated to cost of goods sold or ending inventory.

C. the first to be allocated to cost of goods sold.

Which statement is false? A. Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. B. No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. C. An inventory count is generally more accurate when goods are not being sold or received during the counting. D. Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

D. Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

An assumption about cost flow is used A. because it is required by the income tax regulation. B. even when there is no change in the purchase price of inventory. C. only when the flow of goods cannot be determined. D. because prices usually change, and tracking which units have been sold is difficult.

D. because prices usually change, and tracking which units have been sold is difficult.

The selection of an appropriate inventory cost flow assumption for an individual company is made by A. the external auditors. B. the SEC. C. the internal auditors. D. management.

D. management.