21. Just-in-time inventory systems cannot be used in conjunction with LIFO.
22. Companies with perpetual inventories need not take physical inventory counts because inventory amounts are perpetually available.
23. The higher a company's inventory turnover rate, the higher its gross profit.
24. A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.
25. Overstating the ending inventory will result in understating the cost of good sold and overstating profits.
Multiple Choice Questions
26. During the course of an audit of a company's financial statements, an auditor will be concerned that the company's inventory:
A. Physically exists
B. Is valued correctly
C. Both of the above
D. None of the above
27. Inventory
A. Consists of all goods owned and held for sale to customers.
B. Is a non-financial asset
C. Both A and B
D. Neither A nor B
28. The lower of cost or market rule may be applied by comparing the market value of the inventory to the cost of the inventory based on:
A. Individual inventory items
B. Major inventory categories
C. The entire inventory
D. All of the above
29. Which of the following is not considered an acceptable inventory cost method according to GAAP?
A. First-in, first-out
B. First-in, last-out
C. Last-in, first-out
D. Average cost
30. When prices are increasing which inventory method will produce the highest cost of goods sold?
A. FIFO
B. LIFO
C. Average
D. Cost of goods sold will not change