1. In order to determine inventory for its balance sheet, it is best for a compa

Question

1. In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for

a. the periodic inventory system

b. the perpetual inventory system

c. both the periodic and perpetual inventory system

d. neither the periodic nor perpetual inventory system

2. In order to evaluate a companys gross profit ratio,

a. the ratio should be compared with forecasted financial statements

b. the ratio should be compared with those of the prior years

c. the ratio should be compared with other companies in the same industry

d. the ratio should be compared with those of both prior years and competitors

3. Which method assigns the same cost to all units whether sold or left in ending inventory?

a. specific identification

b. weighted average cost

c. FIFO

d. LIFO

4. A major advantage of the weighted average method of inventory costing is that

a. cost flows correspond with the physical flow of merchandise

b. it is relatively easy to apply

c. it matches current costs with revenues

d. recent costs are assigned to the ending inventory balance

5. If the amount assigned to ending inventory is incorrect,

a. the balance sheet is affected, but the income statement is not

b. the income statement is affected, but the balance sheet is not

c. the balance sheet is affected, but cost of goods sold is not

d. both the balance sheet and the income statement are affected

6. The party to a promissory note that agrees to repay money on the maturity date of the note is called the

a. lender

b. maker of the note

c. payee of the note

d. recipient of the note

7. Assets classified as property, plant and equipment are reported at

a. each asset%u2019s estimated market value at the balance sheet date

b. each asset%u2019s estimated salvage value at the balance sheet date

c. the estimated depreciable cost at the balance sheet date.

d. each asset%u2019s original cost less depreciation since acquisition

8. Interest is capitalized when incurred in connection with the construction of plant assets because

a. interest is considered a part of the acquisition cost of the related plant asset

b. the decision to purchase a plant asset is a business decision separate from the financing decision

c. many plant assets last longer than 20 years

d. interest is considered an expense of the period

Explanation / Answer

1. In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for

c. both the periodic and perpetual inventory system

2. In order to evaluate a companys gross profit ratio,

d. the ratio should be compared with those of both prior years and competitors

3. Which method assigns the same cost to all units whether sold or left in ending inventory?

b. weighted average cost

4. A major advantage of the weighted average method of inventory costing is that

b. it is relatively easy to apply

5. If the amount assigned to ending inventory is incorrect,

d. both the balance sheet and the income statement are affected

6. The party to a promissory note that agrees to repay money on the maturity date of the note is called the

b. maker of the note

7. Assets classified as property, plant and equipment are reported at

d. each asset%u2019s original cost less depreciation since acquisition

8. Interest is capitalized when incurred in connection with the construction of plant assets because

a. interest is considered a part of the acquisition cost of the related plant asset

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