FUNDAMENTAL ACCOUNTING
PRINCIPLES EXAM 2025 QUESTIONS
AND ANSWERS
Sometimes companies must estimate ending inventory. Review the reasons given below for
estimating inventory and choose all of the correct responses. - ANS -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? - ANS -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? - ANS Goods shipped
FOB shipping point will be included in the buyer's inventory.
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, Identify the safeguards that companies implement to protect their inventory. - ANS 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 __________. - ANS -Earliest
-Income Statement
An advantage of the LIFO method is that it best matches - ANS current costs with revenues
Determine which of the following statements are correct regarding the difference between
physical flow and the cost flow of inventory. - ANS -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? - ANS -Events such as errors
-Events such as theft
-Events such as loss
-Events such as damage
2 Copyright ©2025 THESTAR ALL RIGHTS RESERVED
PRINCIPLES EXAM 2025 QUESTIONS
AND ANSWERS
Sometimes companies must estimate ending inventory. Review the reasons given below for
estimating inventory and choose all of the correct responses. - ANS -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? - ANS -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? - ANS Goods shipped
FOB shipping point will be included in the buyer's inventory.
1 Copyright ©2025 THESTAR ALL RIGHTS RESERVED
, Identify the safeguards that companies implement to protect their inventory. - ANS 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 __________. - ANS -Earliest
-Income Statement
An advantage of the LIFO method is that it best matches - ANS current costs with revenues
Determine which of the following statements are correct regarding the difference between
physical flow and the cost flow of inventory. - ANS -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? - ANS -Events such as errors
-Events such as theft
-Events such as loss
-Events such as damage
2 Copyright ©2025 THESTAR ALL RIGHTS RESERVED
