1. True or false: Generally accepted accounting principles do not require the cost flow assumption
to correspond to the physical flow of inventory.
True false question.
True
Falseincorrect
Reason:
If the cost of inventory never changed, all three cost flow assumptions would yield the same financial
statement result
Correct AnswerQuestion
True
2. The total cost of goods available for sale must be allocated between which of the following
accounts?
Multiple select question.
Cost of goods sold
correct
Manufacturing overhead
Sales
incorrect
Ending inventory
incorrect
Correct AnswerQuestion
Cost of goods sold
Ending inventory
3. Riley Corporation sells bicycles. At the beginning of the year, there was one bicycle in inventory
costing $800. Riley purchased another bicycle for $900 and then sold one of the bicycles for
$1,100. How much should be allocated to Cost of goods sold using the first-in, first-out method
(FIFO)?
Multiple choice question.
$900
$1,100
incorrect
$850
$800
Correct AnswerQuestion
$800
4. Which of the following statements are true?
Multiple select question.
According to GAAP, the cost flow assumption used by companies does not have to correspond
to the actual physical flow of inventory.
incorrect
The FIFO cost flow assumption always results in the highest cost of goods sold amount.
If the cost of inventory never changed, all three cost flow assumptions would yield the same
financial statement results.
incorrect
According to GAAP, the cost flow assumption used by companies must correspond to the actual
physical flow of inventory.
incorrect
Correct AnswerQuestion
According to GAAP, the cost flow assumption used by companies does not have to correspond
to the actual physical flow of inventory.
If the cost of inventory never changed, all three cost flow assumptions would yield the same
financial statement results.
5. Which of the following are true regarding the perpetual inventory system?
Multiple select question.
Perpetual systems are usually less expensive and less complicated than periodic systems.
incorrect
Perpetual systems are typically used when there is a small number of inventory units, each with
a high unit value.
incorrect
The perpetual system gives management greater control over inventories.
correct
Perpetual systems are usually more expensive and more complicated than periodic systems.
incorrect
The perpetual system gives management less control over inventories.
incorrect
Correct AnswerQuestion
Perpetual systems are typically used when there is a small number of inventory units, each with
a high unit value.
The perpetual system gives management greater control over inventories.
Perpetual systems are usually more expensive and more complicated than periodic systems.
6. Riley Corporation sells bicycles. At the beginning of the year, there was one bicycle in inventory
costing $800. Riley purchased another bicycle for $900 and then sold one of the bicycles for
$1,100. How much should be allocated to ending inventory using the first-in, first-out method
(FIFO)?
Multiple choice question.
$900
$800
$850
incorrect
$1,100
Correct AnswerQuestion
$900
7. The inventory method that keeps a running record of the amount of inventory on hand is known
as the
Multiple choice question.
last-in, first-out inventory system.
perpetual inventory system.
first-in, first-out inventory system.
periodic inventory system.
incorrect
Correct AnswerQuestion
perpetual inventory system.
8. True or false: Generally accepted accounting principles do not require the cost flow assumption
to correspond to the physical flow of inventory.
True false question.
True
Falseincorrect
Reason:
If the cost of inventory never changed, all three cost flow assumptions would yield the same financial
statement result
Correct AnswerQuestion
True
9. Which of the following statements is true?
Multiple choice question.
Using the periodic inventory system, purchases of inventory are accumulated in the Inventory account.
incorrect
A periodic inventory system does not keep a running record of the dollar amount of inventory on hand.
Using the periodic inventory system, an entry must be made at the time of sale to reflect cost of good
sold.
In a perpetual inventory system, ending inventory must be determined by physically counting the goods
on hand at the end of the period.
Correct AnswerQuestion
A periodic inventory system does not keep a running record of the dollar amount of inventory on hand.
10. Identify the true statement regarding methods of determining inventory quantities.
Multiple choice question.
Perpetual inventory systems are typically used where a small number of units, each with a high unit
value, exists.
A physical inventory is not needed when using a perpetual inventory system.
A periodic inventory system is more complicated and usually more expensive than a perpetual inventory
system.
incorrect
Periodic inventory systems are typically used where continuous monitoring of inventory levels is
essential.
Correct AnswerQuestion
Perpetual inventory systems are typically used where a small number of units, each with a high unit
value, exists.
11. Which of the following are true of goods shipped on consignment?
Multiple select question.
The consignor acts as an agent for the owner.
incorrect
Consignment goods should be included in the inventory of the consignee.
Consignment goods should be included in the inventory of the consignor.
correct
The consignee acts as an agent for the owner.
incorrect
Correct AnswerQuestion
Consignment goods should be included in the inventory of the consignor.
The consignee acts as an agent for the owner.
12. Identify the true statement regarding methods of determining inventory quantities.
Multiple choice question.
Periodic inventory systems are typically used where continuous monitoring of inventory levels is
essential.
A periodic inventory system is more complicated and usually more expensive than a perpetual inventory
system.
A physical inventory is not needed when using a perpetual inventory system.
incorrect
Perpetual inventory systems are typically used where a small number of units, each with a high unit
value, exists.
Correct AnswerQuestion
Perpetual inventory systems are typically used where a small number of units, each with a high unit
value, exists.
13. Identify the true statement regarding absorption costing and variable costing.
Multiple choice question.
Variable costing expenses fixed costs immediately
Variable costing puts the full cost of items sold into Cost of goods sold
incorrect
Fixed costs are allocated based on the number of units produced under variable costing
Correct AnswerQuestion
Variable costing expenses fixed costs immediately
14. Which of the following are true of vendor allowances?
Multiple select question.
A slotting fee is an example of a vendor allowance.
correct
With vendor allowances, customers make payments or credits to manufacturers.
incorrect
With vendor allowances, manufacturers make payments or credits to their customers.
incorrect
Vendor allowances are rare in retail sales.
Vendor allowances are common in retail sales.
correct
Correct AnswerQuestion
A slotting fee is an example of a vendor allowance.
With vendor allowances, manufacturers make payments or credits to their customers.
Vendor allowances are common in retail sales.
15. Which of the following are true of current cost accounting?
Multiple select question.
It overcomes the weakness of inventory holding gains and losses.
incorrect
It is allowed by the FASB in voluntary supplemental disclosure.
incorrect
It requires a large number of estimates.
correct
It is allowed in the basic financial statements under GAAP.
incorrect
Correct AnswerQuestion
It overcomes the weakness of inventory holding gains and losses.
It is allowed by the FASB in voluntary supplemental disclosure.
It requires a large number of estimates.
16. Identify the true statement regarding absorption costing and variable costing.
Multiple choice question.
Fixed costs are allocated based on the number of units produced under variable costing
incorrect
Variable costing expenses fixed costs immediately
Variable costing puts the full cost of items sold into Cost of goods sold
Correct AnswerQuestion
Variable costing expenses fixed costs immediately
17. The inventory turnover ratio can be distorted due to a LIFO reserve because
Multiple choice question.
the numerator of the ratio, cost of goods sold, is predominantly current costs.
the denominator of the ratio, cost of goods sold, is predominantly current costs.
incorrect
the numerator of the ratio, inventory, is old LIFO costs.
the denominator of the ratio, inventory, is predominantly current costs.
Correct AnswerQuestion
the numerator of the ratio, cost of goods sold, is predominantly current costs.
18. Which of the following are true of the LIFO reserve?
Multiple select question.
It is required by the SEC.
correct
It must be disclosed at each balance sheet date.
incorrect
It addresses the issue of profitability between LIFO and FIFO.
It addresses the issue of comparability between LIFO and FIFO.
correct
Correct AnswerQuestion
It is required by the SEC.
It must be disclosed at each balance sheet date.
It addresses the issue of comparability between LIFO and FIFO.
19. Messer Corporation sells recreational vehicles (RV). At the beginning of the year, they had one
RV in inventory costing $40,000. They purchased another RV for $42,000. They sold one of the
RVs for $57,500. How much is gross profit using the last-in, first-out (LIFO) method?
Multiple choice question.
$16,500
Reason:
$57,500 - $42,000
$17,500
incorrect
Reason:
$57,500 - $42,000
$15,500
$24,500
Reason:
$57,500 - $42,000
Correct AnswerQuestion
$15,500
20. Research evidence consistently shows that ______ adopters have lower levels of inventory
fluctuations and lower leverage in comparison with other inventory method adopters.
Multiple choice question.
LIFO
FIFO
incorrect
Specific identification
Weighted average
Correct AnswerQuestion
LIFO
21. Under LIFO-LCM, market should not exceed the inventory's net realizable value (NRV). This is
known as the iField 1Field 1 i , Incorrect Unavailable.
Correct AnswerQuestion
Field 1: ceiling
22. Identify the correct statement regarding long-lived assets.
Multiple choice question.
Measures that use input market numbers are called expected benefit
approaches.
incorrect
Measures that use output market numbers are called expected benefit
approaches.
Assets could be measured at their estimated cost in an output market using
economic sacrifice approaches.
Expected benefit approaches recognize that assets are valuable because of
the future cash outflows.
Correct AnswerQuestion
Measures that use output market numbers are called expected benefit
approaches.
23. Costs that are necessary to acquire the asset and make it ready
for use are called& capital Field 1Field 1 capital , Incorrect
Unavailable&costs.
Correct AnswerQuestion
Field 1:capitalized
24. Discounted present value and cash inflow that an asset would
bring if it were sold instead of being used in operations are examples
of an
Multiple choice question.
expected sacrifice approach.
incorrect
input market measure.
economic sacrifice approach.
expected benefit approach.
Correct AnswerQuestion
expected benefit approach.
25. GAAP limits the amount of interest that can be capitalized to the
lower of which of the following two?
Multiple select question.
Imputed interest on equity financing
Interest on contributed ownership capital
incorrect
Avoidable interest
incorrect
Interest actually incurred
correct
Correct AnswerQuestion
Avoidable interest
Interest actually incurred
26. Which of the following is not a criteria required for costs to be
capitalized?
Multiple choice question.
The costs relate to a specific contract.
incorrect
The costs would have been incurred without the contract signing.
Reason:&
These costs would be expensed immediately.
The costs are expected to be recovered.
The costs generate resources that will be used to satisfy performance
obligations in the future.
Correct AnswerQuestion
The costs would have been incurred without the contract signing.
27. Identify the correct statement.
Multiple choice question.
U.S. tax rules differ from GAAP rules and do not require avoidable interest to
be capitalized for tax purposes.
For tax purposes, it is better to capitalize interest than to deduct it
immediately.
incorrect
For financial reporting purposes, the manner in which costs are allocated is
guided by which asset generated the cost.
U.S. tax rules don't require cost allocations between land and buildings.
Correct AnswerQuestion
For financial reporting purposes, the manner in which costs are allocated is
guided by which asset generated the cost.
28. Intangible assets that have indefinite lives
Multiple select question.
are evaluated annually for impairment.
correct
are not amortized.
incorrect
are amortized over a period of 20 years.
incorrect
are not reviewed for impairment.
Correct AnswerQuestion
are evaluated annually for impairment.
are not amortized.
29. Which of the following statements are true regarding costs?
(Check all that apply.)
Multiple select question.
For contracts lasting less than a year, the incremental costs may be
expensed immediately.
correct
For contracts lasting more than a year, the incremental costs must be
expensed immediately.
In order to be capitalized, costs must be unrecoverable.
incorrect
Incremental costs related to the successful negotiation of a contract
should be capitalized.
correct
Expenses that would have been incurred without the contract signing
are expensed immediately.
incorrect
Correct AnswerQuestion
For contracts lasting less than a year, the incremental costs may be
expensed immediately.
Incremental costs related to the successful negotiation of a contract
should be capitalized.
Expenses that would have been incurred without the contract signing
are expensed immediately.
30. Which of the following are true statements?
Multiple select question.
Tax reporting is concerned with allocating costs to the asset that
generated the costs.
incorrect
Financial reporting is concerned with minimizing tax payments.
Tax reporting is concerned with minimizing tax payments.
incorrect
Financial reporting is concerned with allocating costs to the asset that
generated the costs.
correct
Correct AnswerQuestion
Tax reporting is concerned with minimizing tax payments.
Financial reporting is concerned with allocating costs to the asset that
generated the costs.
31. True or false: Under GAAP, if an asset is written down, it can later
be written back up.
True false question.
Trueincorrect
Reason:&
Once an asset is written down, it cannot later be written back up to the
original higher carrying amount if the fair value recovers.
False
Correct AnswerQuestion
False
32. The amount of the write-down that must be recognized due to an
impairment loss is the difference between
Multiple choice question.
future net cash inflows and the current carrying amount of the asset.
incorrect
fair value of the asset and its historical cost.
the fair value of the asset and its current carrying amount.
future net cash inflows and the historical cost of the asset.
Correct AnswerQuestion
the fair value of the asset and its current carrying amount.
33. Identify the correct statement.
Multiple choice question.
For tax purposes, it is better to capitalize interest than to deduct it
immediately.
For financial reporting purposes, the manner in which costs are allocated is
guided by which asset generated the cost.
correct
U.S. tax rules differ from GAAP rules and do not require avoidable interest to
be capitalized for tax purposes.
U.S. tax rules don't require cost allocations between land and buildings.
Correct AnswerQuestion
For financial reporting purposes, the manner in which costs are allocated is
guided by which asset generated the cost.
34. The systematic expensing and write-down of a tangible long-
lived assets is known as
Multiple choice question.
impairment.
depreciation.
amortization.
incorrect
depletion.
Correct AnswerQuestion
depreciation.
35. Which of the following are true of impairment evaluation for
indefinite-lived intangible assets?
Multiple select question.
Firms may first assess quantitative factors to determine whether a
qualitative impairment test is necessary.
incorrect
U.S. GAAP requires that all firms perform both qualitative and
quantitative impairment tests.
Firms may first assess qualitative factors to determine whether a
quantitative impairment test is necessary.
incorrect
U.S. GAAP allows a two-step impairment evaluation process.
correct
Correct AnswerQuestion
Firms may first assess qualitative factors to determine whether a
quantitative impairment test is necessary.
U.S. GAAP allows a two-step impairment evaluation process.
36. Identify the correct statement regarding assets held for sale.
Multiple choice question.
The operating results of assets classified as held for sale are reported in
discontinued operations only if the assets have been sold as of year end.
incorrect
When assets are held for sale, they are reported at the higher of book value
or fair value less costs to sell.
When assets are held for sale, their fair value less costs to sell are shown as
a liability on the balance sheet.
When assets are expected to be sold within one year of the balance sheet
date, they should be classified as "held for sale".
Correct AnswerQuestion
When assets are expected to be sold within one year of the balance sheet
date, they should be classified as "held for sale".
37. Identify the correct statement regarding the depreciation
process.
Multiple choice question.
The assignment of expired costs to periods for mineral deposits and other
wasting assets is referred to as amortization.
GAAP accounting depreciation is a process of cost allocation, not asset
valuation.
correct
Any allocation of costs to periods is known as the impairment process.
Depreciation is intended to track the asset's declining market value.
Correct AnswerQuestion
GAAP accounting depreciation is a process of cost allocation, not asset
valuation.
38. Prince Corporation sells a truck for $8,500 after it had been used
for 3 years. The truck was purchased for $17,000, had a useful life of 5
years, and had a $2,000 salvage value. The journal entry to record the
sale of the truck would include
Multiple choice question.
a credit to gain on sale of asset of $1,000.
incorrect
Reason:&
$17,000 - $2,000 = $15,000 $15,000/5 years = $3,000 per year x 3 years =
$9,000 Book value = $8,000 Gain on sale $8,500 - $8,000 = $500
a debit to loss on sale of asset for $1,800.
Reason:&
$17,000 - $2,000 = $15,000 $15,000/5 years = $3,000 per year x 3 years =
$9,000 Book value = $8,000 Gain on sale $8,500 - $8,000 = $500
a credit to gain on sale of asset of $500.
a debit to loss on sale of asset for $3,700.
Reason:&
$17,000 - $2,000 = $15,000 $15,000/5 years = $3,000 per year x 3 years =
$9,000 Book value = $8,000 Gain on sale $8,500 - $8,000 = $500
Correct AnswerQuestion
a credit to gain on sale of asset of $500.
