Accounting Exam 2 Review

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| By Lekden8
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Lekden8
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Quizzes Created: 1 | Total Attempts: 689
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  • 1/5 Questions

    Which of the following companies would most like have the highest inventory turnover?

    • A bakery.
    • An art gallery.
    • A car dealer.
    • A piano manufacturer.
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About This Quiz

Exams give everyone a thought that they are not fully prepared. Having done a mock exam in class in preparation for the finals this review questions cover some concepts that you should ensure you understand fully. Give it a try and all the best as you revise for the finals.

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  • 2. 

    If goods in transit are shipped FOB destination,

    • The buyer has title to the goods until they are delivered.

    • The seller has title to the goods until they are delivered.

    • The shipper has title to the goods while they are in transit.

    • No one has title to the goods until they are delivered.

    Correct Answer
    A. The seller has title to the goods until they are delivered.
    Explanation
    If goods in transit are shipped FOB destination, it means that the seller retains ownership and title to the goods until they are delivered to the buyer. This means that the buyer does not have legal ownership of the goods until they have been delivered. The seller is responsible for any damages or loss that may occur during the transit of the goods.

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  • 3. 

    An assumption about inventory cost flow is necessary:

    • Because inventory costs change and tracking which units actually sold is difficult.

    • Because cost flow must follow the physical flow of the inventory.

    • Because average days in inventory must be computed.

    • So as to compute total operating expenses.

    Correct Answer
    A. Because inventory costs change and tracking which units actually sold is difficult.
    Explanation
    An assumption about inventory cost flow is necessary because inventory costs change and tracking which units actually sold is difficult. This assumption allows businesses to accurately calculate the cost of goods sold and determine the value of the remaining inventory. Without this assumption, it would be challenging to determine the profitability of a business and make informed financial decisions.

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  • 4. 

    If beginning inventory is understated by $10,000, the effect of this error in the current period is:                         Cost of Goods Sold                        Net Income

    • Understated Understated

    • Overstated Overstated

    • Understated Overstated

    • Overstated Understated

    Correct Answer
    A. Understated Overstated
    Explanation
    If beginning inventory is understated by $10,000, it means that the actual value of the beginning inventory is $10,000 more than what is recorded. This error will result in the cost of goods sold being understated because the beginning inventory is used to calculate the cost of goods sold. As a result, the cost of goods sold will be lower than it should be, leading to a higher net income. Therefore, the effect of this error in the current period is that the cost of goods sold is understated and the net income is overstated.

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  • 5. 

    Which method of inventory costing is prohibited under IFRS?

    • FIFO.

    • LIFO

    • Specific identification.

    • Average cost.

    Correct Answer
    A. LIFO
    Explanation
    LIFO (Last-In, First-Out) method of inventory costing is prohibited under IFRS (International Financial Reporting Standards). This method assumes that the most recently acquired inventory is sold first, which may not accurately reflect the actual flow of goods. IFRS requires the use of either the FIFO (First-In, First-Out) method or the weighted average cost method for inventory valuation. FIFO assumes that the oldest inventory is sold first, while the weighted average cost method calculates the average cost of inventory based on the total cost divided by the total quantity.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 20, 2012
    Quiz Created by
    Lekden8
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