Download Does the way a company such as Best Buy accounts for its inventory

Does the way a company such as Best Buy
accounts for its inventory affect its net
income in a given year?
1. Yes
2. No
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2
Do you think that there are accounting rules
that all companies must use for reporting
inventories?
1. Yes
2. No
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2
Can a company change the way that it
accounts for its inventory to make it look
more profitable?
1. Yes
2. No
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2
Do small and large merchandising
businesses use the same methods for
accounting for inventories?
1. Yes
2. No
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2
Do merchandising businesses such as Best Buy
have to disclose in its financial statements how it
accounts for its inventories?
1. Yes
2. No
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2
Two primary objectives of control over inventory
are safeguarding the inventory and properly
reporting it in the financial statements.
1. True
2. False
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The selection of an inventory costing
method can have a significant impact on the
financial statements.
1. True
2. False
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2
When reporting merchandise inventory in the current asset
section of the balance sheet, the method of determining the
cost of the inventory and the method of valuing the
inventory should also be reported.
1. True
2. False
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When goods are purchased or sold FOB
shipping point, title passes to the buyer
when the goods are shipped.
1. True
2. False
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2
An error that understates the ending
inventory will also cause net income for the
period to be understated.
1. True
2. False
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2
Goods held on consignment should be
included in the inventory of the consignee.
1. True
2. False
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2
The gross profit method is useful in
estimating the cost of merchandise
destroyed by fires or other disasters.
1. True
2. False
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2
All of the following are controls
to safeguard inventory except
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1. security guards
2. plastic alarm tags
3. unlocked storage
areas
4. cameras
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Which of the following is not a common
inventory cost flow assumption in
businesses?
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1.
2.
3.
4.
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First- in, first-out
Middle-in, first-out
Last-in, first-out
Average cost
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The specific identification method
would not be used by which business?
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25%
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1. Automobile
dealers
2. Jewelry stores
3. Art galleries
4. Grocery stores
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Under which method of inventory costing is
the ending inventory made up of the most
recent costs?
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1. First-in, first out
(FIFO)
2. Last-in, first-out
(LIFO)
3. Average cost
4. Specific
identification
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Under which method of inventory costing are
the costs included in the merchandise sold
in the order in which they were incurred?
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1. First-in, first out
(FIFO)
2. Last-in, first-out
(LIFO)
3. Average cost
4. Specific
identification
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Using the periodic inventory system for
costing inventory, the cost of goods sold is
computed from which equation?
1.
2.
3.
4.
Beginning inventory –
purchases + ending
inventory
Beginning inventory +
purchases - ending
inventory
Sales – operating
expenses + purchases
+ ending inventory
Ending inventory +
purchases + beginning
inventory
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In a period of inflation or rising prices, which
inventory flow assumption will result in
income tax savings?
1. First-in, first out
(FIFO)
2. Last-in, first-out
(LIFO)
3. Average cost
4. Specific
identification
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In applying the lower of cost of market
method for valuing inventory, market is
defined as
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1. selling price
2. net realizable value
3. current replacement
cost
4. historical cost plus
inflationary markup
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Title passes to the buyer when goods are
delivered under which of the following
shipping terms?
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1. Lower of cost or
market
2. Consignment
3. FOB destination
4. FOB shipping
point
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When applying the retail inventory method, the
estimated cost of the ending inventory is
calculated by multiplying the cost-to-retail ratio by
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1. net sales
2. purchases
3. ending inventory
at retail
4. beginning
inventory at retail
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