1. Which of the following accounts would you not expect to find on the balance sheet of a manufacturing company?

a. finished goods inventory
b. raw materials inventory
c. work in process
d. merchandise inventory

2. Adjustments to purchases are accounted for by

a. debiting Freight-In
b. crediting Purchase Returns
c. crediting Merchandise Inventory
d. All of the above are possible adjustments

3. A department store had items in its inventory at the end of the year that had a recorded book value of $10,000 and, because of fashion changes, a market value of only $7,000. The department store failed to write down these inventory items to market value. To keep the obsolete condition of the inventory items away from its auditors, the firm shipped the goods to a remote warehouse. The effect of this error was to

a. understate the inventory turnover ratio
b. overstate the cost of goods sold to sales percentage
c. overstate the total assets turnover ratio
d. understate net income

4. The Spirit Company, a manufacturer of cheerleading products, had a beginning balance in raw materials inventory of $20,000. During the year, an additional $80,000 of raw materials was purchased. Raw materials worth $75,000 was transferred to work-in-process inventory during the year. What is Spirit's ending raw materials inventory?

a. $15,000
b. $20,000
c. $25,000
d. $75,000

5. One example of a product cost is

a. selling cost
b. sales staff's automobile costs
c. the president's salary
d. factory payroll

6. (CMA adapted, Dec 86 #14) Whenever Morton Shoe Company must use market rather than cost to value an inventory item, the inventory account is reduced and the account "loss due to market decline of inventory" is increased. The balance of this account would be reflected as a separate item on the

a. Statement of financial position as a deduction from retained earnings
b. Statement of income as an extraordinary loss
c. Statement of income as a deduction from gross profit on sales
d. Statement of income as an operating expense

7. Western Inc. uses a periodic inventory system. Beginning inventory is $20,000 and purchases for the year are $80,000. A physical inventory shows that $15,000 of the inventory remains. How much is recorded as cost of goods sold for the year?

a. $75,000
b. $80,000
c. $85,000
d. $95,000

8. Which inventory cost flow assumption emphasizes the income statement as opposed to the balance sheet?

a. LIFO method
b. FIFO method
c. weighted-average method
d. acquisition cost

9. Using the LIFO cost flow assumption can mislead users of financial statement by

a. encouraging managers to increase purchases
b. manipulating net income
c. showing increases in short-term liquidity
d. overstating the balance sheet

10. A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax income of $400,000. If it had used LIFO, its beginning inventory would have been $20,000, its ending inventory would have been $16,000, and its pretax income would have been:

a. $388,000
b. $396,000
c. $404,000
d. $412,000

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