71. If all things are equal except one company uses LIFO during inflation and the other uses FIFO then:
A. The LIFO company will have a higher inventory turnover.
B. The FIFO company will have a higher inventory turnover.
C. The two companies will have the same inventory turnover.
D. Inventory valuation methods do not effect inventory turnover calculations.
72. An advocate of just-in-time inventory system would say:
A. Maintain a large inventory selection for customers.
B. Leave extra time in order to make inventory deadlines.
C. Maintain a small inventory supply.
D. LIFO is preferred over FIFO.
73. The logic behind the lower-of-cost-or-market rule is:
A. Inventory gradually becomes obsolete.
B. Inventory that is unsalable should be written down to zero (or its scrap value).
C. An asset is not worth more than it would cost the owner to replace it.
D. Inventory that is unsalable should be written down to its replacement cost.
74. Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:
A. Is obsolete.
B. Has been written down to a carrying value below cost.
C. Is shown at the lesser of cost or sales value.
D. None of the above.
75. The lower-of-cost-or-market rule:
A. Is used in conjunction with the other inventory cost flow assumptions.
B. Cannot be used if LIFO or FIFO are also used.
C. Can be used in conjunction with LIFO but not FIFO.
D. Can only be used with the specific identification cost flow assumption.
76. Goods in transit between the buyer and the seller belong to:
A. The seller.
B. The buyer.
C. The freight company.
D. The answer depends upon whether the goods were shipped F.O.B. shipping point or F.O.B. destination.
77. In a periodic inventory system, the cost of goods sold is determined as follows:
A. Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year.
B. Net sales, less the balance in the Gross Profit account.
C. Cost of goods available for sale during the year, less the ending inventory.
D. A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.
78. During periods of rising prices, and being primarily concerned with tax implications, most companies would select:
A. LIFO.
B. FIFO.
C. Specific identification.
D. The inventory valuation does not affect taxation.
79. For the purpose of delaying income taxes, during an inflationary period, which method would be best?
A. LIFO.
B. FIFO.
C. Average.
D. Taxes would be the same under each assumption.
80. Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:
A. Periodic LIFO often results in a higher valuation of inventory, thus reducing taxable income.
B. This adjustment is necessary to record shrinkage losses.
C. Periodic LIFO often results in a lower valuation of inventory, thus reducing taxable income.
D. None of the above. Periodic and perpetual costing procedures produce the same results if the year-end inventory has been counted properly.