1. The inventory system that uses the merchandise inventory account as an active account is called the:
A) periodic system.
B) perpetual system.
C) LIFO system.
D) FIFO system.
2. A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:
A) LIFO method.
B) average cost method.
C) specific cost method.
D) FIFO method.
3. Cost of goods sold is shown on the:
A) balance sheet as an asset.
B) income statement before gross profit.
C) statement of retained earnings.
D) income statement after gross profit.
4. In order to pay the least income tax possible in periods of rising inventory costs, the company should use which of the following inventory costing methods?
A) FIFO
B) LIFO
C) Average cost
D) Specific identification
5. Ignoring a write-off of inventory that will not affect the financial statements to users of the information is an example of
A) conservatism.
B) consistency.
C) materiality.
D) entity.
6. A physical count of the inventory is taken when using which inventory system?
A) Perpetual inventory system
B) Periodic inventory system
C) Both perpetual and periodic inventory system
D) Neither perpetual or periodic inventory system
7. Assigning LCM to the items that make up the inventory of merchandise at the end of the accounting period is an application of which of the following concepts?
A) Materiality
B) Conservatism
C) Reliability
D) Full disclosure
8. If Period 1 ending inventory is understated, then:
A) both cost of goods sold and net income are understated in Period 1.
B) cost of goods sold is overstated and net income is understated in Period 1.
C) cost of goods sold is understated and net income is overstated in Period 1.
D) both cost of goods sold and net income are overstated in Period 1.
9. Net sales minus estimated gross profit yields the estimated:
A) ending inventory.
B) beginning inventory.
C) gross profit.
D) cost of goods sold.
10. A company has $8,200 in net sales, $1,100 in gross profit, $2,500 in ending inventory and $2,000 in beginning inventory. The company’s cost of goods sold is:
A) $7,100.
B) $6,200.
C) $5,700.
D) $5,600.
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