TRUE-FALSE STATEMENTS
1. Transactions that affect inventories on hand have an effect on both the balance sheet and the
income statement.
2. The more inventory a company has in stock, the greater the company's profit.
3. Raw materials inventories are the goods that a manufacturer has completed and are ready to be
sold to customers.
4. Goods that have been purchased FOB destination but are in transit, should be excluded from a
physical count of goods.
5. Consigned goods are goods held for sale by one party although ownership of the goods is retained
by another party.
6. The weighted average unit cost method of costing inventories tracks the actual physical flow of
the goods available for sale.
7. Management may choose any inventory costing method it desires as long as the cost flow
assumption chosen is consistent with the physical movement of goods in the company.
8. The First-in, First-out (FIFO) inventory method results in Cost of goods sold valued at the most
recent cost.
9. The matching principle requires that the cost of goods sold be matched against the ending
merchandise inventory in order to determine income.
10. The specific identification method of inventory valuation is desirable when a company sells a
large number of low-unit cost items.
MULTIPLE CHOICE QUESTIONS
11. Inventories affect
a. only the balance sheet.
b. only the income statement.
c. both the balance sheet and the income statement.
d. neither the balance sheet nor the income statement.
12. Merchandise inventory is
a. reported under the classification of Property, Plant, and Equipment on the balance sheet.
b. often reported as a miscellaneous expense on the income statement.
c. reported as a current asset on the balance sheet.
d. generally valued at the price for which the goods can be sold.
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