3) Which statement concerning lower of cost or market (LCM) is incorrect?

LCM is an example of a company choosing the accounting method that will be least likely to overstate assets and income.

Under the LCM basis, market does not apply because assets are always recorded and maintained at cost.

The LCM basis uses current replacement cost because a decline in this cost usually leads to a decline in the selling price of the inventory item.

LCM is applied after one of the cost flow assumptions has been applied.


4) Which of the following is not a common cost flow assumption used in costing inventory?

First-in, first-out

Middle-in, first-out

Last-in, first-out

Average cost


5)  Freight costs incurred by a seller on merchandise sold to customers will cause an increase

in the selling expenses of the buyer.

in operating expenses for the seller.

to the cost of goods sold of the seller.

to a contra-revenue account of the seller.


6)  Which of these would cause the inventory turnover ratio to increase the most?

Increasing the amount of inventory on hand.

Keeping the amount of inventory on hand constant but increasing sales.

Keeping the amount of inventory on hand constant but decreasing sales.

Decreasing the amount of inventory on hand and increasing sales.