Question

26. An ventory available. that yields the 21. Physical cons of inventory: 1. Are not necessary under the perpetual system. R. Are meressary to adjust the loventory account to the actual inventory Must be taken at least once a month. D. Requires the use of hand-held portable computers. Are a necessary under the cost to benefit constraint. 22. During a period of steadily rising costs, the inventory valuation method that yields lowest reported net income is: A. Specific identification method. B. Average cost method. C Weighted average method. D. FIFO method. E LIFO method. 23. The inventory valuation method that tends to smooth out erratic changes in costs is: A. FIFO. B. Weighted average. CLIFO. D. Specific identification. E WIFO. 24. The consistency concept: A. Prescribes a company to consistently apply the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting. B. Requires a company to use one method of inventory valuation exclusively. C. Requires that all companies in the same industry use the same accounting methods of inventory valuation. D. Is also called the full disclosure principle. E. Is also called the matching principle. 25. The understatement of the ending inventory balance causes: A. Cost of goods sold to be overstated and net income to be understated. B. Cost of goods sold to be overstated and net income to be overstated. C. Cost of goods sold to be understated and net income to be understated. D. Cost of goods sold to be understated and net income to be overstated. E. Cost of goods sold to be overstated and net income to be correct.

Answer 1

21. C

22. E. LIFO because low net income means low ending inventory value. As the cost in inventory is rising LIFO method will result in lowest net income.

23. B. Weighted average method, smooths out cist fluctuations.

24. A.

25. A, cost of goods sold will be overstated and net income will be understated.