#1
What is the primary objective of inventory management?
Maximizing inventory turnover
ExplanationAims to increase the rate at which inventory is sold to optimize cash flow and minimize holding costs.
#2
Which financial statement is affected by the revenue recognition principle?
Income Statement
ExplanationShows revenue and expenses to determine net income, influenced by the timing of revenue recognition.
#3
What is the purpose of using the perpetual inventory system?
To maintain continuous and up-to-date records of inventory levels and transactions
ExplanationTracks inventory in real-time to provide accurate information on stock levels and movements.
#4
Which financial statement reports the ending inventory balance?
Balance Sheet
ExplanationReflects the value of assets, including inventory, at the end of a specific period.
#5
What is the primary disadvantage of using the FIFO method of inventory valuation?
It results in higher taxable income during periods of rising prices
ExplanationIncreases taxable income due to lower COGS, resulting in higher tax liabilities.
#6
Which financial statement would show the effect of revenue recognition on a company's financial position?
Balance Sheet
ExplanationReflects the impact of revenue recognition on assets, liabilities, and equity at a specific point in time.
#7
Which accounting method records inventory at the cost price until it's sold?
FIFO (First In, First Out)
ExplanationRecords inventory based on the assumption that the first items purchased are the first to be sold.
#8
Under the accrual basis of accounting, when should revenue be recognized?
When services are rendered or goods delivered, regardless of when cash is received
ExplanationRecognizes revenue when it is earned, not necessarily when cash is received.
#9
Which inventory costing method assumes that the most recent items purchased are the first to be sold?
LIFO (Last In, First Out)
ExplanationAssumes the most recently acquired inventory is sold first, reflecting current market prices.
#10
Which revenue recognition principle emphasizes recognizing revenue when it's earned and reasonably measurable, regardless of when cash is received?
The Revenue Realization Principle
ExplanationFocuses on recording revenue when it's earned, based on the completion of services or delivery of goods.
#11
Which inventory costing method results in a higher ending inventory value during periods of rising prices?
FIFO (First In, First Out)
ExplanationLeads to a higher ending inventory value as older, lower-cost items are sold first.
#12
According to the revenue recognition principle, when should revenue be recognized for the sale of goods?
At the time the goods are shipped or delivered
ExplanationRecognizes revenue when goods are transferred to the buyer, indicating completion of the sale.
#13
In which situation would the completed contract method for revenue recognition be appropriate?
When the contract spans multiple reporting periods and its outcome cannot be reliably estimated
ExplanationUsed when it's difficult to estimate contract outcomes until completion, recognizing revenue at the end of the project.
#14
Under the installment sales method, when is revenue recognized?
Over the collection period as cash is received
ExplanationRecognizes revenue over time as payments are received, rather than at the point of sale.
#15
In which situation would the percentage-of-completion method for revenue recognition be most appropriate?
When the contract has predictable outcomes and spans multiple periods
ExplanationSuitable for long-term contracts with clear milestones, recognizing revenue as progress is made.
#16
Under the cost recovery method for revenue recognition, when is revenue recognized?
When costs incurred are recovered
ExplanationRecognizes revenue once all costs associated with the transaction have been covered.
#17
In which situation would the cost recovery method for revenue recognition be used?
When the outcome of a contract cannot be reliably estimated
ExplanationApplies when it's uncertain if a contract will be profitable, delaying revenue recognition until costs are recovered.