Question 1

Generally accepted accounting principles require that the inventory of a company be reported at:

Accepted Answer

lower of cost or market.

Question 2

Damaged and obsolete goods:

Accepted Answer

are included in inventory at their net realizable value.

Question 3

The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory is the:

Accepted Answer

specific identification method.

Question 4

In applying the lower of cost or market method to inventory valuation, market is defined as:

Accepted Answer

current replacement cost.

Question 5

Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?

Accepted Answer

FIFO

Question 6

The full disclosure principle:

Accepted Answer

requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made, and its effect on net income.

Question 7

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Accepted Answer

LIFO method.

Question 8

Physical inventory counts:

Accepted Answer

are necessary to measure and adjust for inventory shrinkage.

Question 9

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

Accepted Answer

LIFO method.

Question 10

The understatement of the beginning inventory balance causes:

Accepted Answer

cost of goods sold to be understated and net income to be overstated.

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