Trivia Questions: Basic Financial Accounting Quiz!

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| By Liannemateo
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  • 1/8 Questions

    If the unit costs of inventory are increasing, which method should you use to get lower income taxes?

    • FIFO
    • LIFO
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About This Quiz


Financial accounting is the discipline of accounting involved with the summary, analysis, and recording of financial transactions related to a business. It entails the preparation of financial statements for public use. Stockholders, suppliers, banks, and government agencies are all interested in financial accounting. With this quiz, you should recognize what to do when unit costs are rising and what needs to be done to lower income tax. You must try this great quiz.

Trivia Questions: Basic Financial Accounting Quiz! - Quiz

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  • 2. 

    What is the Cost of Goods Sold Equation?

    • BI - P + EI = COGS

    • BI + P + EI = COGS

    • BI - P - EI = COGS

    • BI + P - EI = COGS

    Correct Answer
    A. BI + P - EI = COGS
    Explanation
    The Cost of Goods Sold equation is calculated by adding the beginning inventory (BI) to the purchases (P) and subtracting the ending inventory (EI). This equation helps determine the total cost of goods that were sold during a specific period of time.

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  • 3. 

    When unit costs are rising, which of the following methods will give you the most profit?

    • Average

    • LIFO

    • FIFO

    Correct Answer
    A. FIFO
    Explanation
    When unit costs are rising, using the FIFO (First-In, First-Out) method will give you the most profit. This is because FIFO assumes that the first units purchased are the first ones sold, resulting in lower costs of goods sold. As a result, the remaining inventory is valued at higher, more current costs, leading to higher profits.

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  • 4. 

    Consider the following: Beginning inventory:  2 units $50 Additional Purchases: 2 units $60 4 units $70 Using the FIFO method, what is the amount of COGS if 5 units were sold?

    • $180

    • $290

    • $340

    • $350

    Correct Answer
    A. $290
    Explanation
    The FIFO (First-In, First-Out) method assumes that the first units purchased are the first ones sold. In this case, the beginning inventory of 2 units at $50 each is sold first, followed by 2 units purchased at $60 each. The remaining 1 unit from the beginning inventory is then sold, along with 4 units purchased at $70 each. Therefore, the cost of goods sold (COGS) is calculated as (2 units x $50) + (2 units x $60) + (1 unit x $60) + (2 units x $70) = $290.

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  • 5. 

    Consider the Inventory Turnover Data below: Harley-Davidson: 9.8 How many days does Harley take to sell its inventory?

    • 28.7

    • 37.2

    • 40.8

    • 60.2

    Correct Answer
    A. 37.2
    Explanation
    Harley-Davidson takes approximately 37.2 days to sell its inventory. This can be calculated by dividing the number of days in a year (365) by the inventory turnover ratio (9.8). The inventory turnover ratio measures how efficiently a company manages its inventory by indicating the number of times the inventory is sold and replaced within a given period. In this case, Harley-Davidson sells and replaces its inventory approximately 9.8 times in a year, resulting in an average of 37.2 days to sell its inventory.

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  • 6. 

    Which of the following are acceptable inventory costing methods?

    • Average cost

    • Cost flow

    • First In Last Out

    • Last In First Out

    • First In, First Out

    Correct Answer(s)
    A. Average cost
    A. Last In First Out
    A. First In, First Out
    Explanation
    The acceptable inventory costing methods are Average cost, Last In First Out (LIFO), and First In, First Out (FIFO). Average cost calculates the average cost of all units in inventory, LIFO assumes that the most recently purchased items are sold first, and FIFO assumes that the oldest items in inventory are sold first. These methods are commonly used to determine the value of inventory and the cost of goods sold.

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  • 7. 

    Which of the following methods is not allowed by IFRS?

    • Average Cost

    • FIFO

    • LIFO

    Correct Answer
    A. LIFO
    Explanation
    LIFO (Last-In, First-Out) is not allowed by IFRS (International Financial Reporting Standards). Under LIFO, the assumption is that the most recently acquired inventory is sold first, which does not align with the IFRS requirement of using the "cost formula" to determine the value of inventory. IFRS requires the use of either the Average Cost method or the FIFO (First-In, First-Out) method, which are considered more consistent and reliable for financial reporting purposes.

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  • 8. 

    If the unit costs of inventory are decreasing, which method should you use to get lower income taxes?

    • FIFO

    • LIFO

    Correct Answer
    A. FIFO
    Explanation
    If the unit costs of inventory are decreasing, using the FIFO (First-In, First-Out) method will result in lower income taxes. This is because FIFO assumes that the oldest inventory is sold first, which means that the cost of goods sold will be calculated using the lower unit costs. As a result, the profit will be lower, leading to lower income taxes.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Dec 08, 2011
    Quiz Created by
    Liannemateo
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