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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 50% 1 50% 2 Do you think that there are accounting rules that all companies must use for reporting inventories? 1. Yes 2. No 50% 1 50% 2 Can a company change the way that it accounts for its inventory to make it look more profitable? 1. Yes 2. No 50% 1 50% 2 Do small and large merchandising businesses use the same methods for accounting for inventories? 1. Yes 2. No 50% 1 50% 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 50% 1 50% 2 Two primary objectives of control over inventory are safeguarding the inventory and properly reporting it in the financial statements. 1. True 2. False 50% 1 50% 2 The selection of an inventory costing method can have a significant impact on the financial statements. 1. True 2. False 50% 1 50% 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 50% 1 50% 2 When goods are purchased or sold FOB shipping point, title passes to the buyer when the goods are shipped. 1. True 2. False 50% 1 50% 2 An error that understates the ending inventory will also cause net income for the period to be understated. 1. True 2. False 50% 1 50% 2 Goods held on consignment should be included in the inventory of the consignee. 1. True 2. False 50% 1 50% 2 The gross profit method is useful in estimating the cost of merchandise destroyed by fires or other disasters. 1. True 2. False 50% 1 50% 2 All of the following are controls to safeguard inventory except 25% 25% 25% 25% 1. security guards 2. plastic alarm tags 3. unlocked storage areas 4. cameras 1 2 3 4 Which of the following is not a common inventory cost flow assumption in businesses? 25% 1. 2. 3. 4. 25% 25% 25% First- in, first-out Middle-in, first-out Last-in, first-out Average cost 1 2 3 4 The specific identification method would not be used by which business? 25% 25% 25% 25% 1. Automobile dealers 2. Jewelry stores 3. Art galleries 4. Grocery stores 1 2 3 4 Under which method of inventory costing is the ending inventory made up of the most recent costs? 25% 25% 25% 25% 1. First-in, first out (FIFO) 2. Last-in, first-out (LIFO) 3. Average cost 4. Specific identification 1 2 3 4 Under which method of inventory costing are the costs included in the merchandise sold in the order in which they were incurred? 25% 25% 25% 25% 1. First-in, first out (FIFO) 2. Last-in, first-out (LIFO) 3. Average cost 4. Specific identification 1 2 3 4 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 25% 1 25% 2 25% 3 25% 4 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 25% 1 25% 2 25% 3 25% 4 In applying the lower of cost of market method for valuing inventory, market is defined as 25% 25% 25% 25% 1. selling price 2. net realizable value 3. current replacement cost 4. historical cost plus inflationary markup 1 2 3 4 Title passes to the buyer when goods are delivered under which of the following shipping terms? 25% 25% 25% 25% 1. Lower of cost or market 2. Consignment 3. FOB destination 4. FOB shipping point 1 2 3 4 When applying the retail inventory method, the estimated cost of the ending inventory is calculated by multiplying the cost-to-retail ratio by 25% 25% 25% 25% 1. net sales 2. purchases 3. ending inventory at retail 4. beginning inventory at retail 1 2 3 4