Accounting Principles
Fundamental Prep Questions
With Verified Answers
Sometimes companies must estimate ending inventory. Review
the reasons given below for estimating inventory and choose all of
the correct responses. - ANSWER -The store was flooded.
-Fire destroyed the inventory warehouse.
-Interim financial statements need to be prepared.
Which of the statements below explain why LCM is used? -
ANSWER -LCM allows companies to recognize a loss in value of
an asset in the period the loss occurs.
-Accounting principles require conservatism when reporting
financial information.
-Companies never want to report inventory on a balance sheet
that is higher than replacement cost.
-Assets are not shown at an inflated value on the balance sheet,
but rather at lower of cost or replacement cost.
Which of the following statements is correct regarding goods in
transit? - ANSWER Goods shipped FOB shipping point will be
included in the buyer's inventory.
Identify the safeguards that companies implement to protect their
inventory. - ANSWER Restrict access to inventory.Match
inventory received with purchase orders.Implement security
measures, such as cameras.Control access to inventory records.
The FIFO cost flow assumption assumes that the cost of items
purchased __________ are the costs that will be transferred first
to cost of goods sold on the __________. - ANSWER -Earliest
-Income Statement
An advantage of the LIFO method is that it best matches -
ANSWER current costs with revenues
Determine which of the following statements are correct
regarding the difference between physical flow and the cost flow
of inventory. - ANSWER -Cost flow is an assumption about which
goods/items are sold.
-Physical flow is focused on the actual movement of goods.
-A business may adopt any cost flow assumption whe
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