TCU - FUNDAMENTALS OF ACCOUNTING
PRINCIPLES EXAM QUESTIONS AND
VERIFIED DETAILED ANSWERS GRADED
A+
QUESTIONS AND 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 when accounting for perishable items.
-Perishable items must have an actual physical flow of FIFO.
Why would the physical count of inventory be different than what is shown in perpetual
inventory records? ANSWER -Events such as errors
-Events such as theft
-Events such as loss
-Events such as damage
The kind of business that would use the specific identification method of inventory costing
includes: ANSWER A car dealership
The _____ principle states that inventory costs are expensed as cost of goods sold when
inventory is sold. ANSWER expense recognition
Which statement(s) below correctly describe(s) the relationship of cost of goods sold and
ending inventory? ANSWER -Cost of goods available for sale must be allocated between
cost of goods sold and ending inventory.
-Cost of goods sold plus ending inventory will equal the total goods available for sale.
Show your understanding of the ownership of goods in transit by completing the following
statement.
PRINCIPLES EXAM QUESTIONS AND
VERIFIED DETAILED ANSWERS GRADED
A+
QUESTIONS AND 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 when accounting for perishable items.
-Perishable items must have an actual physical flow of FIFO.
Why would the physical count of inventory be different than what is shown in perpetual
inventory records? ANSWER -Events such as errors
-Events such as theft
-Events such as loss
-Events such as damage
The kind of business that would use the specific identification method of inventory costing
includes: ANSWER A car dealership
The _____ principle states that inventory costs are expensed as cost of goods sold when
inventory is sold. ANSWER expense recognition
Which statement(s) below correctly describe(s) the relationship of cost of goods sold and
ending inventory? ANSWER -Cost of goods available for sale must be allocated between
cost of goods sold and ending inventory.
-Cost of goods sold plus ending inventory will equal the total goods available for sale.
Show your understanding of the ownership of goods in transit by completing the following
statement.
