CB CB Inventory and Fixed Assets

Question 1

Under the FIFO inventory method, the first units purchased are assumed to be:

Accepted Answer

The first units sold

Answer

FIFO (First-In, First-Out) assumes the oldest inventory items are sold first, leaving more recent purchases in ending inventory.

Question 2

During a period of rising prices, LIFO results in a higher cost of goods sold compared to FIFO because:

Accepted Answer

It assigns the most recent, higher costs to inventory sold

Answer

LIFO (Last-In, First-Out) assigns the latest—and in inflationary times, highest—costs to cost of goods sold, reducing taxable income.

Question 3

A physical inventory count revealed 50 fewer units than the perpetual inventory records showed. The bookkeeper should:

Accepted Answer

Debit Inventory Over and Short and credit Inventory

Answer

An inventory shortage is recorded by crediting Inventory (reducing it) and debiting an Inventory Over and Short account to track the discrepancy.

Question 4

Goods held on consignment by a retailer are included in whose inventory?

Accepted Answer

The consignor's (owner's) inventory

Answer

Title to consigned goods remains with the consignor until sold, so consigned goods must be included in the consignor's inventory, not the retailer's.

Question 5

Which inventory valuation method results in an ending inventory value closest to current replacement cost?

Accepted Answer

FIFO

Answer

FIFO leaves the most recently purchased units in ending inventory, so the balance sheet value reflects prices closest to current market cost.

(CB) Certified Bookkeeper Practice Test