Multiple Choice Questions

Physical inventory counts:
  • are included in inventory at their net realizable value.
  • cost of goods sold to be understated and net income to be overstated.
  • 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.
  • are necessary to measure and adjust for inventory shrinkage.
The full disclosure principle:
  • cost of goods sold to be understated and net income to be overstated.
  • 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.
  • are included in inventory at their net realizable value.
  • are necessary to measure and adjust for inventory shrinkage.
The understatement of the beginning inventory balance causes:
  • LIFO method.
  • are necessary to measure and adjust for inventory shrinkage.
  • cost of goods sold to be understated and net income to be overstated.
  • lower of cost or market.
In applying the lower of cost or market method to inventory valuation, market is defined as:
  • specific identification method.
  • lower of cost or market.
  • LIFO method.
  • current replacement cost.
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?
  • lower of cost or market.
  • LIFO method.
  • specific identification method.
  • FIFO
Generally accepted accounting principles require that the inventory of a company be reported at:
  • cost of goods sold to be understated and net income to be overstated.
  • lower of cost or market.
  • current replacement cost.
  • LIFO method.
During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
  • FIFO
  • current replacement cost.
  • lower of cost or market.
  • LIFO method.
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Multiple Choice Questions
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