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1. Merchandise inventory includes:
a. All goods owned by a company and held for sale.
b. All goods in transit.
c. All goods on consignment.
d. Damaged goods only.
e. All of the above
2. Goods in transit are included in a purchaser’s inventory:
a. At any time in transit.
b. When the purchaser is responsible for paying freight charges.
c. When the supplier is responsible for freight charges.
d. If the goods are shipped FOB destination.
e. After the half-way point between the buyer and seller.
3. During a period of steadily rising costs, the inventory valuation method that yields the
lowest reported net income is:
a. Specification identification method.
b. Average cost method.
c. Weighted-average method.
d. FIFO method.
e. LIFO method.
4. If a period-end inventory amount is reported in error, it can cause a misstatement in:
a. Cost of goods sold
b. Gross profit
c. Net income
d. Current assets
e. All of the above
5. The understatement of the ending inventory balance causes:
a. Cost of goods sold to be overstated and net income to be understated.
b. Cost of goods sold to be overstated and net income to be overstated.
c. Cost of goods sold to be understated and net income to be understated.
d. Cost of goods sold to be understated and net income to be overstated.
e. Cost of goods sold to be overstated and net income to be correct.
