Ch8

Question 1

​​1​The primary purpose of an inventory flow assumption is to:

​a ​Increase inventory turnover.
​b​ Increase gross profit.
​c​ Determine which unit costs are assigned to inventory, and which are assigned to the cost of goods sold.
​d ​Minimize taxable income during periods of rising prices.

Answer 1

C

Question 2

​​2​During a period of steadily rising prices, which of the following inventory valuation methods is likely to result in the lowest cost of goods sold?
​a​LIFO.
​b​FIFO.
​c​The retail method.
​d​The gross profit method.

Answer 2

B

Question 3

​​3​The primary reason for the popularity of the LIFO flow assumption is that this method:
​a ​Is most appropriate when each item in inventory is unique.
​b​ Tends to minimize taxable income.
​c​ Causes inventory to be reported at or near its current replacement cost.
​d ​Reduces the amount of money “tied up” in inventory.

Answer 3

B

Question 4

​​4​In a periodic inventory system, the cost of goods sold is determined by:
​a​ Multiplying net sales for the period by a cost ratio.
​b​ Journal entries made at the time of each sales transaction.
​c​ Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end.
​d​ Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period.

Answer 4

D

Question 5

​​5​Walters Co. has an inventory turnover rate of 7, and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Matrix to convert its inventory into cash through normal business operations is approximately:
​a​21 days.
​b​52 days.
​c​4 months.
​d​2.5 months.

Answer 5

C