49) Under the LIFO cost flow assumption during a period of rising costs, which of the following
is false?
A) Cost of goods sold will be lower under LIFO than under FIFO.
B) Net income will be lower under LIFO than under FIFO.
C) Income tax expense will be lower under LIFO than under FIFO.
D) Ending inventory will be lower under LIFO than under FIFO.
50) Which of the following statements is correct when inventory unit costs are increasing?
A) LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B) LIFO will result in higher net income and lower inventory valuation than will FIFO.
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO.
51) Which of the following statements is correct when inventory unit costs are decreasing?
A) LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B) LIFO will result in higher net income and a higher inventory valuation than will FIFO.
C) FIFO will result in higher net income and a higher inventory valuation than will LIFO.
D) FIFO will result in higher net income and a lower inventory valuation than will LIFO.
52) Which of the following statements is correct?
A) FIFO reports lower net income amounts than LIFO when unit costs are increasing.
B) LIFO reports a higher net income amount than FIFO when unit costs are increasing.
C) LIFO reports a higher net income amount than FIFO when unit costs are decreasing.
D) LIFO reports the same amount of net income as FIFO when unit costs are increasing.
53) Which of the following statements is correct?
A) The choice of an inventory costing method is dependent upon the actual physical flow of the
goods in inventory.
B) LIFO should be used during a period of increasing unit costs when the objective is to
maximize the ending inventory value on the balance sheet.
C) FIFO should be used during a period of decreasing unit costs when the objective is to
maximize the gross profit reported on the income statement.
D) The average cost method will result in an ending inventory balance which is somewhere
between LIFO and FIFO when inventory unit costs are changing.
54) Maxim Corp. has provided the following information about one of its products:
Date
Transaction
Number of
Units
Cost per Unit
1/1
Beginning
Inventory
200
$
140
6/5
Purchase
400
$
160
11/10
Purchase
100
$
20
During the year, Maxim sold 400 units.
What is ending inventory using the average cost method?
A) $48,000.
B) $64,000.
C) $50,000.
D) $62,000.
55) Maxim Corp. has provided the following information about one of its products:
Date
Transaction
Number of
Units
Cost per Unit
1/1
Beginning
Inventory
200
$
140
6/5
Purchase
400
$
160
11/10
Purchase
100
$
200
During the year, Maxim sold 400 units.
What is cost of goods sold using the average cost method?
A) $48,000.
B) $64,000.
C) $50,000.
D) $62,000.
56) Which of the following statements is false?
A) Companies do not have to use the same inventory method for all items of inventory.
B) Companies do not have to consistently use the same inventory costing methods over time.
C) Use of the LIFO inventory method during a period of increasing unit costs may create a
conflict of interest between the owners and managers.
D) A company choosing to maximize stockholders’ equity during a period of increasing unit
costs should use the FIFO inventory method.
57) Moore Company purchased an item for inventory that cost $20 per unit and was priced to
sell at $30. It was determined that the cost to sell is $12 per unit. Using the lower of cost or net
realizable value rule, what amount should be reported on the balance sheet for inventory?
A) $18.
B) $20.
C) $10.
D) $8.
58) On December 31, 2019, Cruise Company has 10,000 units of an inventory item, which cost
$40 per unit when purchased on June 15, 2019. The selling price was $60 per unit. On December
30, 2019, it was determined that the cost to sell is $24 per unit. At what amount should the
10,000 units of inventory be reported at on the December 31, 2019 balance sheet?
A) $400,000.
B) $360,000.
C) $160,000.
D) $40,000.
59) Which of the following statements does not accurately describe the lower of cost or net
realizable value valuation method for inventory?
A) The journal entry to write down inventory decreases gross profit.
B) The journal entry to write down inventory decreases current assets.
C) The journal entry to write down inventory does not affect pretax income.
D) The journal entry to write down inventory increases cost of goods sold.
60) Which of the following statements does not accurately describe the effects of a write-down
of inventory on December 31, 2018 using the lower of cost or net realizable value valuation
method?
A) The 2018 gross profit decreases.
B) The 2019 cost of goods sold is effectively decreased if the inventory is sold during 2019.
C) The 2018 ending inventory is decreased.
D) The 2019 gross profit is not affected if the inventory is sold during 2019.
61) Abel Company must write down its inventory by $30,000 to the net realizable value of
$450,000 at December 31, 2019. What is the effect of this write-down on the year 2019 financial
statements?
A) Decrease cost of goods sold.
B) Decrease ending inventory on the balance sheet.
C) Increase pretax income.
D) Decrease accounts payable.
62) Barrington Company must write down its inventory from its cost of $260,000 to its net
realizable value of $248,000 at December 31, 2018. The inventory will all be sold in the year
2019. Which of the following provides a correct effect of the write-down?
A) The 2018 gross profit decreases by $12,000.
B) The 2019 cost of goods sold increases by $12,000.
C) The 2019 ending inventory increases by $12,000.
D) The 2019 gross profit is not affected if the inventory is sold during 2019.
63) Tinker’s cost of goods sold in the year of sale (2019) was $750,000 and 2018 cost of goods
sold was $770,000. The inventory at the end of 2019 was $188,000 and at the end of 2018 the
inventory was $208,000.
Tinker’s inventory turnover during 2019 was closest to:
A) 3.99
B) 3.79
C) 3.84
D) 3.89
64) Tinker’s cost of goods sold in the year of sale (2019) was $750,000 and 2018 cost of goods
sold was $770,000. The inventory at the end of 2019 was $188,000 and at the end of 2018 the
inventory was $208,000.
Tinker’s average number of days to sell its inventory during 2019 is closest to: (Use 365 days a
year.)
A) 96
B) 92
C) 95
D) 94
65) The inventory turnover
A) reflects how many times, on average, that the inventory balance was sold during the year.
B) is increased when accounts receivable increases.
C) is decreased if inventory balances decrease from the beginning of the year to the end of the
year.
D) is improved if cost of goods sold decreases and inventory balances increase from one year to
the next.
66) Cranchey Company reported a LIFO ending inventory of $670,000 on its balance sheet at
December 31, 2019. Cranchey’s disclosure notes to the financial statements reported that the
LIFO Reserve at December 31, 2018 was $32,000 and the LIFO Reserve at December 31, 2019
was $40,000. Which of the following statements is correct for Cranchey Company for the effect
of the LIFO Reserve in 2019 in converting LIFO amounts to FIFO amounts?
A) Cost of goods sold would have been higher by $40,000 under FIFO.
B) Pretax income would have been higher by $32,000 under FIFO.
C) Pretax income would have been higher by $8,000 under FIFO.
D) Cost of goods sold would have been higher by $8,000 under FIFO.
67) If two companies each use different inventory accounting methods, the companies can be
made comparable from information reported in the financial statements by
A) converting the FIFO Reserve to a LIFO inventory.
B) converting inventory at cost to inventory at lower of cost or market (net realizable value).
C) converting cost of goods sold to lower of cost or market (net realizable value).
D) converting inventory on a LIFO basis to a FIFO basis using the LIFO Reserve.
68) QV-TV, Inc. provided the following items in its notes to the financial statements for the
year-end 2019: Cost of goods sold was $22 billion under FIFO costing and the inventory value
under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2018 was $0.6 billion and
at year-end 2019 it had increased to $0.8 billion.
What is the LIFO inventory value at year-end 2019?
A) $1.9 billion.
B) $2.9 billion.
C) $2.3 billion.
D) $1.3 billion.
69) QV-TV, Inc. provided the following items in its notes to the financial statements for the
year-end 2019: Cost of goods sold was $22 billion under FIFO costing and the inventory value
under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2018 was $0.6 billion and
at year-end 2019 it had increased to $0.8 billion.
How much is the 2019 LIFO cost of goods sold?
A) $22.2 billion.
B) $19.8 billion.
C) $22.8 billion.
D) $19.2 billion.
70) A $25,000 overstatement of the 2019 ending inventory was discovered after the financial
statements for 2019 were prepared. Which of the following describes the effect of the inventory
error on the 2019 financial statements?
A) Current assets were overstated and net income was understated.
B) Current assets were understated and net income was understated.
C) Current assets were overstated and net income was overstated.
D) Current assets were understated and net income was overstated.
71) A $25,000 overstatement of the 2018 ending inventory was discovered after the financial
statements for 2018 were prepared. Which of the following describes the effect of the inventory
error on the 2019 financial statements?
A) Net income and stockholders’ equity are both understated.
B) Net income is understated and stockholders’ equity is correct.
C) Net income and stockholders’ equity are both overstated.
D) Net income and stockholders’ equity are both unaffected.
72) Wilmington Company reported pretax income of $25,000 during 2018 and $30,000 during
2019. Later it was discovered that the ending inventory for 2018 was understated by $2,000 (and
not corrected in 2018). What is the correct pretax income for each year?
A.
$
23,000
$
32,000
B.
$
27,000
$
32,000
C.
$
27,000
$
28,000
D.
$
23,000
$
28,000
A) Option A
B) Option B
C) Option C
D) Option D
73) At the end of 2019, a $5,000 understatement was discovered in the 2019 ending inventory as
reflected in the inventory records. What were the 2019 effects of the $5,000 inventory error
(before correction)?
A) Assets were understated by $5,000 and pretax income was understated by $5,000.
B) Assets were understated by $5,000 and pretax income was overstated by $5,000.
C) Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
D) Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.
74) An understatement of the ending inventory in Year 1, if not corrected, will cause which of
the following?
A) The year 1 net income to be understated and Year 2 net income to be overstated.
B) The year 1 net income to be overstated and Year 2 net income to be overstated.
C) The year 1 net income to be overstated and Year 2 net income will be correct.
D) The year 1 net income to be overstated and Year 2 net income to be understated.
75) Which of the following is correct when, in the same year, beginning inventory is understated
by $1,300 and ending inventory is understated by $700?
A) Net income is understated by $600.
B) Net income is understated by $2,000.
C) Net income is overstated by $600.
D) Net income is overstated by $2,000.
76) Which of the following is correct when, in the same year, beginning inventory is overstated
by $1,300 and ending inventory is understated by $700?
A) Net income is understated by $600.
B) Net income is understated by $2,000.
C) Net income is overstated by $600.
D) Net income is overstated by $2,000.
77) On December 15, 2019, Transport Company accepted delivery of merchandise that it
purchased on credit. As of December 31, 2019, the company had neither recorded the transaction
nor included the merchandise in its ending inventory amount because the seller’s invoice had not
been received. The effect of this omission on its balance sheet at December 31, 2019, (end of the
accounting period) was that
A) inventory and net income were overstated but liabilities were correct.
B) net income was the only item affected by the omission.
C) inventory and accounts payable were understated but net income was correct.
D) assets and stockholders’ equity were understated but liabilities were correct.
78) A company using the periodic inventory system correctly recorded a purchase of
merchandise, but the merchandise was not included in the physical inventory count at the end of
the accounting period. The error caused which of the following?
A) An understatement of both net income and inventory.
B) An overstatement of inventory, purchases, and accounts payable.
C) An understatement of inventory, purchases, and accounts payable.
D) An overstatement of net income and inventory.
79) Hollander Company hired some students to help count inventory during their semester break.
Unfortunately, the students added incorrectly and the 2019 ending inventory was overstated by
$5,000. What would be the effect of this error in ending inventory?
A) 2019 net income would be overstated.
B) 2019 net income would be understated.
C) 2019 ending retained earnings would be understated.
D) 2019 cost of goods sold would be overstated.
80) During the audit of Montane Company’s 2019 financial statements, the auditors discovered
that the 2019 ending inventory had been overstated by $8,000 and that the 2019 beginning
inventory was overstated by $5,000. Before the effect of these errors, 2019 pretax income had
been computed as $100,000. What should be reported as the correct 2019 pretax income before
taxes?
A) $113,000.
B) $87,000.
C) $105,000.
D) $97,000.
81) RJ Corporation has provided the following information about one of its inventory items:
Date
Transaction
Number of
Units
Cost per Unit
1/1
Beginning Inventory
400
$
3,200
6/6
Purchase
800
$
3,600
9/10
Purchase
1,200
$
4,000
11/15
Purchase
800
$
4,200
During the year, RJ sold 3,000 units.
What was ending inventory using the LIFO cost flow assumption?
A) $640,000.
B) $840,000.
C) $770,000.
D) $880,000.