Question 1

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory.

Accepted Answer

False

Question 2

LIFO always provides a better match of revenue and expense than does FIFO.

Accepted Answer

LIFO matches the most recently purchased inventory to the current period's cost of goods sold, which provides a better match of revenue and expense than FIFO, which matches the oldest purchased inventory to the current period's cost of goods sold.

Question 3

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.

Accepted Answer

Discounts are deductions from the listed purchase price and therefore decrease the cost of net purchases. Both the net method and gross method take these discounts into consideration while calculating net purchases.

Question 4

LIFO liquidation profits occur when inventory quantity declines and costs are rising.

Accepted Answer

LIFO (last-in, first-out) assumes that the most recently acquired inventory units are sold first. When inventory quantities decline and costs are rising, the earlier, lower-cost inventory units that remain on the balance sheet are being used up to satisfy current sales, leading to a higher gross profit margin. This is known as LIFO liquidation profit, and it can inflate reported profits and tax liabilities, particularly in periods of rising costs.

Question 5

The gross profit ratio is calculated by dividing gross profit by average inventory.

Accepted Answer

The gross profit ratio is actually calculated by dividing gross profit by net sales.

Question 6

Cost of goods on consignment is included in the consignee's inventory until sold.

Accepted Answer

The answer of Cost of goods on consignment is included...

Question 7

In a periodic inventory system, the cost of purchases is debited to:
A)Purchases.
B)Cost of goods sold.
C)Inventory.
D)Accounts payable.

Accepted Answer

The answer of In a periodic inventory system, the cost...

Question 8

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.

Accepted Answer

In a perpetual inventory system, the cost of goods sold is continuously updated every time a sale is made and the cost of the product is transferred from inventory to cost of goods sold. In contrast, in a periodic inventory system, the cost of goods sold is only calculated at the end of an accounting period based on the beginning inventory, purchases, and ending inventory. This timing difference affects the allocation of costs between inventory and cost of goods sold.

Question 9

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.

Accepted Answer

Inventory costing methods are used to determine the cost of goods sold and ending inventory by allocating costs based on specific assumptions, such as first-in, first-out (FIFO) or last-in, first-out (LIFO). These methods do not determine the actual cost of the inventory, but instead determine how costs are allocated between the two categories.

Question 10

Shipping charges on outgoing goods are included in either cost of goods sold or selling expenses.

Accepted Answer

The answer of Shipping charges on outgoing goods are included...

Question 11

The choice of cost flow assumption (FIFO, LIFO, or average) does not depend on the actual physical flow of the product.

Accepted Answer

The choice of cost flow assumption is purely an accounting decision and does not depend on the actual physical flow of the product. It is based on the method that best represents the cost of goods sold and inventory valuation.

Question 12

A company that prepares its financial statements according to International Financial Reporting Standards can use all of the same inventory valuation methods as a company that prepares its statements under U.S. GAAP.

Accepted Answer

The answer of A company that prepares its financial statements...

Question 13

In a periodic inventory system, the cost of inventories sold is:
A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time goods are sold.

Accepted Answer

The answer of In a periodic inventory system, the cost...

Question 14

LIFO periodic and LIFO perpetual always produce the same amounts for ending inventory.

Accepted Answer

LIFO periodic and LIFO perpetual can produce different amounts for ending inventory because they account for inventory costs at different times. LIFO periodic calculates cost of goods sold and ending inventory at the end of the period, while LIFO perpetual updates inventory continuously with each transaction.

Question 15

In a perpetual inventory system, the cost of purchases is debited to:
A)Purchases.
B)Cost of goods sold.
C)Inventory.
D)Accounts payable.

Accepted Answer

In a perpetual inventory system, the cost of purchases is debited directly to inventory, which results in an increase in the value of inventory. The cost of goods sold is only debited when inventory is sold. Purchases are not directly debited in a perpetual inventory system as they are in a periodic inventory system. Accounts payable would be credited in order to reflect the amount owed to suppliers for the purchases made.

Question 16

Unit LIFO is more costly to implement than dollar-value LIFO.

Accepted Answer

Unit LIFO requires the tracking of physical units and their costs, which can be more expensive and time-consuming than dollar-value LIFO, which only tracks the total value of inventory.

Question 17

In a perpetual inventory system, the cost of inventory sold is:
A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time goods are sold.

Accepted Answer

In a perpetual inventory system, the cost of inventory sold is debited to cost of goods sold at the time goods are sold. This allows for real-time tracking of inventory and cost of goods sold. Option A is incorrect as accounts receivable is a separate account used to track money owed by customers. Option B is incorrect as cost of goods sold is an expense account used to track the cost associated with the products sold. Option D is incorrect as the cost of goods sold needs to be recorded to accurately calculate the company's gross profit.

Question 18

Physical counts of inventory are never done with perpetual inventory systems.

Accepted Answer

Physical counts of inventory may still be necessary with perpetual inventory systems to ensure accuracy and accountability.

Question 19

Dollar-value LIFO eliminates the risk of LIFO liquidations.

Accepted Answer

The answer of Dollar-value LIFO eliminates the risk of LIFO...

Question 20

FIFO periodic and FIFO perpetual always produce the same amounts for cost of goods sold.

Accepted Answer

Both FIFO periodic and FIFO perpetual methods assume that the first items purchased are the first ones sold, therefore resulting in the same amounts for cost of goods sold. The difference between the two methods is in how the inventory is updated and tracked.

Quiz 8: Inventories: Measurement