Prelim-Quiz28

Which of the following is not considered an operating expense?

A. Advertising expense
B. Rent expense
C. Interest expense
D. Administrative (office) expense
C. Interest expense

Which of the following is not a subtotal?

A. Gross margin
B. Net income
C. Cost of goods sold
D. Income from operations
C. Cost of goods sold

Which of the following appears in different sections of the income statement when
prepared on a single‐step basis and when prepared on a multistep basis?
A. Sales commissions
B. Rent expense
C. Interest expense
D. Sales
C. Interest expense

Which of the following items is not shown on a single‐step income statement?

A. Cost of goods sold
B. Selling expenses
C. Gross margin (subtotal)
D. Interest expense
C. Gross margin (subtotal)

The income statement of a company that provides a service only will contain gross
margin.
A. True
B. False
B. False

Consider the following year‐end information for JW Enterprises,

Inc.:
Cost of goods sold $800,000
Sales revenue 1,000,000
Operating expenses 150,000
Non‐operating expenses 50,000
Income tax expense 50,000
What amount will JW Enterprises report for operating profit?
A. $200,000
B. $100,000
C. $ 50,000
D. $ ‐ 0 ‐
C. $ 50,000

The term goods flow refers to the association of costs with their assumed flow in
the operation
of a business.
A. True
B. False
B. False

A fur coat dealer probably would use which of the following inventory methods?
A. Specific identification
B. FIFO
C. Weighted‐average cost
D. LIFO
A. Specific identification

In accounting for inventory, the assumed cost flow must match the physical goods
flow.
A. True
B. False
B. False

The inventory cost flow assumption that generally best matches the physical flow
of inventory is:
A. LIFO
B. FIFO
C. Weighted‐average
D. Lower of cost or net realizable value
B. FIFO

Hampton, Inc. has the following inventory transactions:

Jan. 1 Beginning inventory 100 units @ $2.50 each

Jan. 15 Purchase 100 units @ $3.50 each

Jan. 31 Purchase 100 units @ $4.00 each

What would be the cost of goods sold under the FIFO method if 200 units were
sold in January?
A. $ 800
B. $ 600
C. $ 500
D. $ 400
B. $ 600
Inventory records for Burlington, Inc. revealed the following:

Date Transaction # of Units Unit Cost

June 1 Beg. Inv. 500 $2.00

June 28 Purchase 400 $3.00

Burlington sold 600 units of inventory during the month. Cost of goods sold
assuming LIFO would be:
A. $1,300
B. $1,600
C. $1,800
D. $1,900
B. $1,600

The inventory cost flow assumption that is least likely to match the physical flow of
inventory for most
companies is:
A. FIFO
B. LIFO
C. Weighted‐average
D. Specific identification
B. LIFO

Dover Company reports the following inventory information:

Date Quantity Price

March 1 Beginning Inventory 20 $2
March 7 Purchase 15 $3
March 11 Sale (25) $7
March 12 Purchase 10 $4
Ending inventory 20

At what amount would Dover report ending inventory using FIFO

cost flow assumptions?
A. $55
B. $70
C. $110
D. $170
B. $70

Which inventory method generally best follows the matching principle?

A. Weighted‐average cost
B. LIFO
C. FIFO
B. LIFO

During periods of consistently falling prices, the FIFO inventory method will
produce the highest possible amount of net income.
A. True
B. False
B. False

During periods of rising costs, FIFO generally results in a higher cost of goods sold.
A. True
B. False
B. False

Perpetual inventory refers to an inventory costing system as compared to a

processing
system?
A. True
B. False
B. False

A perpetual inventory system measures cost of goods

sold by:
A. Making entries to the inventory account for each purchase and sale.
B. Estimating the amount of inventory sold.
C. Counting inventory at the end of the period.
D. Debiting cost of goods sold for all purchases of inventory.
A. Making entries to the inventory account for
each purchase and sale.

The disclosure that shows the difference in the cost of inventory between LIFO and
FIFO is referred to as the:
A. Net realizable value.
B. LIFO reserve.
C. Inventory allowance.
D. FIFO adjustment.
B. LIFO reserve.

Freight charges associated with the purchase of inventory normally are included in
inventory cost.
A. True
B. False
A. True

Goods in transit shipped FOB destination should be included in the seller's ending
inventory.
A. True
B. False
A. True

The adjustment to write down inventory from cost to its lower net realizable value
includes a debit to Cost of Goods Sold and a credit to Inventory.
A. True
B. False
A. True