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70 Multiple choice questions

  1. The cost to replace an inventory item in its identical form,use market value price
  2. True
  3. Measure the amount by which the sale price of inventory exceeds its cost per dollar of sales. It equals gross profit divided by net sales
  4. True
  5. False, Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.
  6. Inventory costing method that assumes both Cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale
  7. generally results in lower income taxes payable when inventory costs are increasing because net income in this case is lower (than if FIFO were used).The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
  8. False, Companies must report inventory at the lower of cost or market value.
  9. True
  10. Inventory costing method that assumes the first units purchased (the first in) are the first ones sold (the first out)
  11. False, Sales revenue minus cost of goods sold equals gross profit.
  12. True
  13. False, A patent is an exclusive right to manufacture a product or to use a process. A copyright is an exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.
  14. True
  15. price per unit times number of units sold
  16. (1) update the balance of inventory for its ending amount, (2) record
    cost of goods sold, and (3) close the temporary purchases accounts to zero.
  17. True
  18. Lifo. LIFO assumes the last purchases are sold first, reporting the most recent inventory cost in cost of goods sold (in the income statement). Thus, LIFO more realistically matches the current costs
    of inventory needed to produce current revenues.
  19. Components that will become part of the finished product but have not yet been used in production
  20. gross profit minus operating expenses.
  21. An income statement that reports multiple levels of income (or profitability)
  22. First find Cost of goods sold which is " the cost of the units sold + your lifo/fifo/weighted average adjustment + write down to market value if needed" . Then do net sales minus this amount to find Gross Profit.
  23. operating income plus nonoperating revenues and minus
    nonoperating expenses.
  24. True, We use the term capitalize to describe recording an expenditure as an asset.
  25. Cost of freight on shipments to customers, which is included in the income statement as either a part of cost of goods sold or as a selling expense
  26. Inventory costing method that matches or identifies each unit of inventory with its actual cost
  27. Inventory items for which the manufacturing process is complete
  28. refers to the
    products that have started the production process but are not yet complete at the end of the
    period.
  29. True
  30. False, Declining-balance depreciation will be higher than straight-line depreciation in earlier years, but lower in later years.
  31. IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting
  32. cost of goods sold divided by average inventory. The ratio
    shows the number of times the firm sells its average inventory balance during a reporting period.
  33. inventory

    Freight charge Debit inventory credit cash
    return debit cash, credit inventory
  34. Difference between all revenues and all expenses for the period
  35. increasing an asset account (cash or accounts receivable) and increasing sales revenue.
  36. gross profit divided by net sales. The gross profit ratio measures the amount by which the sale price of inventory exceeds its cost per dollar of sales. The higher the ratio, the higher is the "markup" a
    company is able to achieve on its inventories
  37. False, When a change in estimate is required, the company changes depreciation in current and future years, but not in prior periods.
  38. True
  39. False, The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use it for financial reporting.
  40. Cost of the inventory that was sold during the period
  41. False, A higher ratio is generally a stronger signal about the company's successful management of inventory.
  42. True
  43. The number of times a firm sells its average inventory balance during a reporting period. It equals Cost of Goods Sold divided by Average Inventory
  44. Operating income plus nonoperating revenues less nonoperating expenses
  45. Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand
  46. Cost to transport inventory to the company, which is included as part of the inventory cost
  47. Profitability from normal operations that equals gross profit less operating expenses
  48. debit to cost of goods sold and a credit to inventory
  49. FIFO, Since FIFO assumes the first purchases sell first,
    the amount it reports for ending inventory better approximates it.
  50. Debit Accounts Payable for full amount, credit inventory for discount, credit cash for the rest (what you actually paid)
  51. the lower of cost or market method, that is, at cost (specific identification, FIFO, LIFO, or weighted average cost) or market value (replacement cost), whichever is lower. When market value falls below cost, we adjust inventory down from cost to market value.
  52. True
  53. Price per unit times number of units left
  54. The difference between sales revenue and COGS
  55. False
  56. Inventory system that maintains a continual record of inventory purchased and sold
  57. Method where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost
  58. an item is sold and when you use a perpetual inventory system.
  59. the highest reported amount for ending inventory, the oldest (or first) items are sold first and these are the lower cost items, leaving the higher cost items to be reported in ending inventory.

    highest reported amount of net income, the oldest (or first) items are sold first and these are the lower cost items. Reporting cost of goods sold based on the lower cost items results in net income being higher
  60. Items a company intends for sale to customers
  61. An adjustment used to convert a company's own inventory records maintained on a FIFO basis to LIFO basis for preparing financial statements
  62. The first entry is the same as that under the periodic system. The
    second entry involves recording the cost of goods sold and decreasing inventory.
  63. Total cost/Total number of units
  64. False, Accumulated Depreciation is a contra-asset account; it reduces an asset account.
  65. False, The debit is to the Inventory account.
  66. True
  67. Inventory costing method that assumes the last units purchased (the last in) are the first ones sold (the first out)
  68. Approximate number of days the average inventory is held. It is 365 days divided by the inventory turnover ratio
  69. True
  70. whether it says sold on account or sold in cash/ paid on account or paid in cash.