1. The cost flow method that results in the lowest income taxes when prices are rising is
a. average cost.
b. FIFO.
c. LIFO.
d. specific identification.


2. The data below are for Parrett Enterprises:
Beginning inventory 100 units at $2.00
Purchase—August 250 units at $1.50
Purchase—October 100 units at $3.00
A periodic inventory system is used; ending inventory is 220 units. What is the ending inventory under FIFO?
a. $380
b. $495
c. $395
d. $480


3. Double-counting an inventory item at year end will result in
a. understated tax liability.
b. overstated cost of goods sold.
c. overstated net income.
d. understated beginning inventory for the next period.


*4. A retail company has goods available for sale of $300,000 at retail and $210,000 at cost, and ending inventory of $60,000 at retail. What is the estimated cost of goods sold?
a. $240,000
b. $168,000
c. $210,000
d. $42,000


*5. Which method might be used to estimate inventory costs when physical inventories are not taken?
a. First-in, first-out
b. Last-in, first-out
c. Average cost method
d. Gross profit method

True/False
1. When prices are rising, FIFO results in a higher ending inventory than LIFO.
True False
2. We can use the LIFO inventory method only if we know that the newest units are always sold first.
True False
3. Goods in transit would be included in the ending inventory of the buyer and the seller.
True False
4. Under the LCM basis, market is defined as current replacement cost, not selling price.
True False
5. When beginning inventory is understated, net income will be understated.
True False
6. Cost of goods sold purchased less the ending inventory equals cost of goods sold.
True False
7. The LIFO method assumes that the earliest goods purchased are the first to be sold.
True False
8. Inventory turnover is computed by dividing the cost of goods sold by the ending inventory.
True False
*9. The gross profit method estimates the cost of ending inventory by applying a gross profit rate to net sales.
True False
*10. The retail inventory method and the gross profit method are both methods of inventory estimation.
True False

True/False
1. The basic principles in developing an accounting information system are cost effectiveness, useful output, and flexibility.
True False
2. Flexibility (the ability to accommodate a variety of users and changing information needs) is not important in designing and developing an efficient and effective accounting information system.
True False
3. The sales journal is used to record all sales of merchandise.
True False
4. An advantage of using subsidiary ledgers is that they show transactions affecting one customer or one creditor in a single account, providing up-to-date information on specific account balances.
True False
5. In posting a multi-column journal, the total of the Other Accounts column is not posted.
True False
6. Each entry in the single-column purchases journal results in a debit to Merchandise Inventory and a credit to Accounts Payable.
True False
7. Only transactions that cannot be entered in a special journal are recorded in the general journal.
True False
8. Companies record all receipts of cash in the cash receipts journal.
True False
9. The purchases journal is used to record all purchases of merchandise.
True False
10. When control and subsidiary accounts are involved, there must be a dual posting: once to the control account and once to the subsidiary account.
True False




1. To be useful, information must be all of the following except
a. accurate.
b. conservative.
c. relevant.
d. understandable.

2. The source for preparing the schedule of accounts receivable is the
a. accounts receivable controlling account.
b. sales journal.
c. accounts receivable subsidiary ledger.
d. trial balance.

3. A group of accounts with a common characteristic, such as all accounts receivable, is a
a. cash receipts journal.
b. subsidiary ledger.
c. special journal.
d. general ledger.

4. Sales of merchandise for cash would be recorded in the
a. sales journal.
b. general journal.
c. purchases journal.
d. cash receipts journal.

5. A purchase return for credit is recorded in the
a. cash receipts journal.
b. cash payments journal.
c. general journal.
d. sales journal.

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