Ch8 Flashcards
1The 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.
C
2During a period of steadily rising prices, which of the following inventory valuation methods is likely to result in the lowest cost of goods sold? aLIFO. bFIFO. cThe retail method. dThe gross profit method.
B
3The 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.
B
4In 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.
D
5Walters 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: a21 days. b52 days. c4 months. d2.5 months.
C