Chapter 7 Practice Exam

false (net purchases = purchases + freight in - purchase discounts taken - purchases and allowances)

Net purchases is computed as follows: Net purchases = purchases + freight out - purchase discounts taken - purchase returns and allowances true false

False (Beginning finished goods inventory + cost of goods manufactured = COGAFS - ending finished inventory = COGS)

The cost of goods sold model for a manufacturer is: Beginning fished goods inventory + purchases (net) = COGAFS - ending finished goods inventory = COGS true false

perpetual

A _________ inventory system keeps a continuous record of the physical quantities of inventory on hand

income

For the year in which prices rise, adoption of a "just-in-time" inventory system will most likely result in an increase in:

true

A perpetual inventory system provides management with valuable tools with which to plan and control inventory levels because the amount of inventory is known at any point in time. true false

merchandise inventory

A retail firm would normally use an inventory account titled:

a

Concerning purchase discounts, which one of the following statements is true? a.) Purchase discounts taken should be deducted from the acquisition cost of the inventory b.) The net price method results in recording accounts payable at the maximum value of the liability that the company may be required to pay out c.) Purchase discounts lost should be included in the cost of inventory d.) An advantage of the gross price method is that it isolates purchase discounts lost and thus highlights inefficiencies

double extension

For companies that have little change in the characteristics of their inventory items, the most appropriate method for computing a cost index for dollar-value LIFO is the _______________ method

false (FIFO produces lowest COGS and highest gross profit)

In a period of falling prices, FIFO produces the lowest cost of goods sold and the highest gross profit. true false

true

In a period of rising prices LIFO produces the highest cost of goods sold and the lowest gross profit. true false

economic control

The basic criterion for including items in inventory is

periodic inventory system

The cost of goods sold can be determined only after a physical count of inventory on hand under the

false

The costs of operating a purchasing department are necessary to the purchasing of inventory therefore; those costs should be allocated to inventory. true false

False (Beginning inventory + purchases (net) = COGAFS - ending inventory = COGS)

The following relationship is only true for a merchandising firm: Beginning inventory + purchases (net) or production costs for the period = COGAFS true false

true

When goods are shipped FOB shipping point, the buyer has economic control of the inventory and must record the goods in its inventory accounts as soon as the goods are shipped. true false

d

Which of the following are characteristics of a perpetual inventory system? a.) Management knows how much inventory is on hand at all times b.) Purchases of inventory are recorded to the inventory account c.) The computer tracks inventory upon a sale and the COGS and inventory are immediately updated d.) all of the above

b

Which of the following inventory cost flow assumptions produces the same ending inventory values under both the periodic and perpetual systems? a.) LIFO b.) FIFO c.) Weighted average d.) Dollar-value LIFO

d

Which one of the following is an advantage of LIFO? a.) In periods of rising prices, more holding gains are reported in net income b.) Record keeping and financial statement preparation are easier c.) Conservative income statements and the balance sheet disclosures result from falling prices d.) In periods of rising prices, less income tax is paid

c

Which one of the following is not an advantage of using the FIFO cost flow assumption? a.) Provides a relevant ending inventory value b.) Is not as susceptible to profit manipulation by management c.) Produces the lowest net income in periods of rising prices d.) Does not produce unusual results when inventory liquidation occurs

c (FIFO produces higher, LIFO produces lower)

Which one of the following statements is false? a.) Under conditions of rising prices, the LIFO method results in lower income than the FIFO method b.) In most cases, the FIFO method approximates the physical flow of items in inventory c.) The LIFO method produces a higher ending inventory than the FIFO method d.) The FIFO method includes holding gains in income

a

Which one of the following types of costs is most likely to be included in determining the cost of inventory? a.) Freight in costs b.) Freight out costs c.) Interest costs of amounts borrowed to finance the purchase of inventory d.) Marketing costs