26. During the course of an audit of a company’s financial statements an auditor will be concerned that the company’s inventory: A. Physically exists B. Is valued correctly C. Both of the above D. None of the above 27. Inventory A. Consists of all goods owned and held for sale to customers. B. Is a non-financial asset C. Both A and B D. Neither A nor B 28. The lower of cost or market rule may be applied by comparing the market value of the inventory to the cost of the inventory based on: A. Individual inventory items B. Major inventory categories C. The entire inventory D. All of the above 29. Which of the following is not considered an acceptable inventory cost method according to GAAP? A. First-in first-out B. First-in last-out C. Last-in first-out D. Average cost 30. When prices are increasing which inventory method will produce the highest cost of goods sold? A. FIFO B. LIFO C. Average D. Cost of goods sold will not change 31. Kent Company has used the same inventory method for many years. This is an example of which principle? A. Matching B. Realization C. Cost D. Consistency 32. Gross profit rate is equal to. A. Net sales divided by gross profit. B. Gross sales divided by gross profit. C. Gross profit divided by net sales. D. Gross profit divided by gross sales. 33. In which of these three inventory cost flow assumptions is it important to determine the actual cost of a particular inventory item being sold in order to determine cost of goods sold? A. LIFO. B. FIFO. C. Specific identification. D. All three assumptions. 34. In a perpetual inventory system two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows: A. One entry recognizes the sales revenue and the other recognizes the cost of goods sold. B. One entry records the purchase of merchandise and the other records the sale. C. One entry records the cost of goods sold and the other reduces the balance in the Inventory account. D. One entry updates the subsidiary ledger and the other updates the general ledger. 35. Which of the four inventory cost flow assumptions is best suited to inventories of high-priced low-volume items? A. LIFO. B. FIFO. C. Average. D. Specific identification.
