MCQ
1. If goods in transit are shipped FOB destination
a. the transportation company has legal title to the goods while the goods are in transit
b. the buyer has legal title to the goods until they are delivered
c. the seller has legal title to the goods until they are delivered
d. no one has legal title to the goods until they are delivered.
2. An auto manufacturer would classify vehicles in various stages of production as
a. merchandise inventory
b. finished goods
c. work in process
d. raw materials
3. Cost of goods sold is computed from the following equation
a. beginning inventory – cost of goods purchased + ending inventory
b. sales + gross profit – ending inventory + beginning inventory
c. beginning inventory + cost of goods purchased – ending inventory
d. sales – cost of goods purchased + beginning inventory – ending inventory
4. The cost of goods available for sale is allocated between
a. beginning inventory and cost of goods on hand
b. ending inventory and cost of goods sold
c. beginning inventory and cost of goods purchased
d. beginning inventory and ending inventory
5. Which one of the following inventory method is often impractical to use?
a. LIFO
b. FIFO
c. Average cost
d. Specific identification
6. Companies adopt different cost flow methods for each of the following reasons except
a. income statement effects
b. balance sheet effects
c. cash flow effects
d. cash flow effects tax effects
7. In periods of rising prices, inventory method which results in the inventory value on the balance sheet that is closest to current cost is the
a. tax method
b. FIFO method
c. Average - cost method
d. LIFO method
8. The managers of Teng Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in perods of declining prices?
a. physical inventory method
b. LIFO
c. Average cost
d. FIFO
9.The consistent application of an inventory costing method is essential for
a. accuracy
b. conservatism
c. comparability
d. efficiency
10. Inventory is reported in the financial statements at
a. market
b. the higher-of-cost-or-market
c. the lower-of-cost-or-market
d. cost
11. Isaac Company developed the following information about its inventories in applying the lower-of-cost-or-market ( LCM ) basis in valuing inventories
Product Cost Market
A $ 110,000 $ 120,000
B $ 80,000 $ 76,000
C $ 160,000 $ 162,000
If Isaac applies the LCM basis, the value of the inventory reported on the balance sheet would be
a. $ 342,000
b. $ 346,000
c. $ 350,000
d. $ 362,000
12. Understanding beginning inventory will understate
a. owner’s equity
b. assets
c. cost of goods sold
d. net income
13. Disclosures about inventory should include each of the following except the
a. major inventory classification
b. quantity of inventory
c. costing method
d. basis of accounting
14. In a period of rising prices, FIFO will have
a. lower net income than LIFO
b. lower cost of goods sold than LIFO
c. lower income tax expense than LIFO
d. lower net purchases than LIFO
15. Euler Company made an inventory count on December 31, 2008. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, 2008, the effects of this error are
Assets Liabilities Equity
a. overstated understated overstated
b. understated no effect understated
c. overstated no effect overstated
d. overstated overstated understated
16. “Generally accepted” in the phrase generally accepted accounting principles means that the principles
a. have been approved for use by the managements of business firms
b. have substantial authoritative support
c. are proven theories of accounting
d. have been approved by the Internal Revenue Service
17. The FASB concluded that the first level in developing the conceptual framework was to determine the
a. objective financial reporting
b. qualitative characteristics of accounting information
c. operating guidelines
d. elements of financial statements
18. Qualitative characteristics include all of the following except
a. relevance
b. reliability
c. profitability
d. comparability
19. An objective of financial reporting is to provide information that is mainly useful to
a. internal and external auditors
b. investors and creditors
c. governmental taxing bodies
d. employees and labor unions
20. An overriding criterion in evaluating the accounting information to be presented is
a. fairness
b. management’s goal
c. decision usefulness
d. legality
21. Which one of the following is not a qualitative characteristic of useful accounting information?
a. comparability
b. relevance
c. reliability
d. conservatism
22. Accounting information should be neutral in order to enhance
a. Reliability
b. Feedback value
c. Relevancy
d. Predictive value
23. Qualitative characteristics associated with relevant accounting information are
a. consistency, faithful representation, and timeliness
b. going concern, cost principle, and materiality
c. predictive value, feedback value, and timeliness
d. neutrality, predictive value, reliability
24. The economic entity assumption states that
a. economic events can be identified with a particular entity
b. the accounting period should not exceed one year
c. it is assumed that the business will operate indefinitely
d. the economic life of a business can be divided into artificial time periods
25. The going concern principle may be inapplicable when
a. liquidation is assumed
b. fair market values are higher than costs
c. net realizable values can not be obtained
d. the business is just started-up
26. The revenue recognition principle
a. states that revenue should be recognized in the period when received
b. states that expense recognition is tied to revenue recognition
c. requires that revenue be recognized in the accounting period when it is earned
d. requires that events which make a difference to financial statement user be disclosed
27. Cost become expenses
a. when they are charged against revenues
b. at the end of the accounting period
c. when they are purchased
d. when they are paid
28. The information provided in the notes that accompany financial statements is required because of the
a. full disclosure principle
b. matching principle
c. cost principle
d. revenue recognition principle
29. Which of the following is a constraint in applying generally accepted accounting principles?
a. conservatism
b. cost
c. consistency
d. time period
30. Return on common stockholder’s equity is
a. net income divided by common equity
b. net income divided by total assets
c. net income divided by the number of common shares outstanding
d. net income divided by total stockholder’s equity
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