Question 1

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

Accepted Answer

This statement is incorrect. When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the oldest purchases (beginning inventory and earlier purchases) until the quantity sold is reached. The cost of the most recent purchases is assigned to ending inventory.

Question 2

The matching principle requires that the inventory valuation method follow the physical flow of inventory.

Accepted Answer

The answer of The matching principle requires that the inventory...

Question 3

Three key variables determine the dollar value of inventory: (1)inventory quantity, (2)costs of inventory and (3)cost flow assumption.

Accepted Answer

This statement is true. The dollar value of inventory is calculated based on the quantity of inventory, the cost of inventory and the cost flow assumption used to determine which units were sold and which remain in inventory.

Question 4

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used

Accepted Answer

The weighted average method assumes that all units in inventory are indistinguishable and assigns the average cost of all units to each unit sold or remaining in inventory. In a perpetual inventory system, the cost of goods sold and inventory are continuously updated with each transaction, whereas in a periodic inventory system, the cost of goods sold and inventory are only updated at the end of an accounting period. Therefore, the timing of transactions can affect the weighted average cost calculation and lead to different results for cost of goods sold and inventory in the two systems.

Question 5

In applying the lower of cost or market method to inventory valuation,market is defined as the current replacement cost.

Accepted Answer

The lower of cost or market method requires inventory to be valued at either its historical cost or its current replacement cost, whichever is lower. Therefore, in this method, market is defined as the current replacement cost.

Question 6

In applying the lower of cost or market method to inventory valuation,market is defined as the current selling price.

Accepted Answer

The answer of In applying the lower of cost or...

Question 7

A company's cost of inventory was $317,500.Due to phenomenal demand for this product,the market value of its inventory increased to $323,000.According to the consistency principle,this company should write up the value of its inventory.

Accepted Answer

The answer of A company's cost of inventory was $317,500.Due...

Question 8

When units are purchased at different costs over time,it is simple to determine the cost per unit assigned to inventory.

Accepted Answer

When units are purchased at different costs over time, it becomes complicated to determine the cost per unit assigned to inventory. This leads to the use of different cost flow assumptions like FIFO, LIFO, and weighted average methods.

Question 9

A company has inventory with a market value of $217,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $217,000.

Accepted Answer

According to the lower of cost or market (LCM) method, inventory should be reported at the lower of its cost or current market value. In this case, the market value of the inventory is $217,000, which is lower than its cost of $241,000. Therefore, the inventory should be written down to its market value of $217,000.

Question 10

The assignment of costs to the cost of goods sold and to inventory under the FIFO is the same for both the perpetual and periodic inventory systems.

Accepted Answer

The assignment of costs under the FIFO method is based on the assumption that the first items purchased (or produced) are the first ones sold. This means that when determining the cost of goods sold and the value of ending inventory, the oldest costs are used first. This principle remains the same regardless of whether a company uses the perpetual or periodic inventory system.

Question 11

Under LIFO,the most recent costs are assigned to ending inventory.

Accepted Answer

Under LIFO (Last In, First Out), the most recent costs are assigned to the cost of goods sold, while the older costs remain in ending inventory.

Question 12

The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.

Accepted Answer

The answer of The lower of cost or market rule...

Question 13

Monthly or quarterly statements are called interim statements because they are prepared between the traditional annual statement dates.

Accepted Answer

Interim statements are prepared between annual statement dates and can be monthly, quarterly, or any other period shorter than a year.

Question 14

LIFO assumes that inventory costs flow in the order they were incurred.

Accepted Answer

The answer of LIFO assumes that inventory costs flow in...

Question 15

The dollar value assigned to goods purchased will differ under the different inventory valuation methods of specific identification,FIFO,LIFO and weighted average.

Accepted Answer

The answer of The dollar value assigned to goods purchased...

Question 16

The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

Accepted Answer

The answer of The FIFO inventory method assumes that costs...

Question 17

The assignment of costs to cost of goods sold and to inventory using specific identification is the same for both the perpetual and periodic systems.

Accepted Answer

Specific identification is a method of assigning costs to individual items of inventory based on their actual cost. This method is applicable to both the perpetual and periodic inventory systems, and the assignment of costs to cost of goods sold and to inventory is done in the same way in both systems.

Question 18

The conservatism principle requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely,then the less optimistic amount is used.

Accepted Answer

The conservatism principle, also known as the prudence principle, recommends choosing the less optimistic estimate of future amounts when more than one estimate exists and they are equally likely. This approach helps to avoid overstating assets or income and understating liabilities or expenses, which could result in misleading financial statements.

Question 19

The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.

Accepted Answer

The inventory valuation method determines the cost of goods sold and thus affects the calculation of gross profit and cost of sales. Different methods such as FIFO, LIFO, and weighted average can result in different values for inventory and cost of goods sold, which in turn affects financial statements and profitability ratios. Therefore, it is important to carefully consider and choose the most appropriate inventory valuation method for a business.

Question 20

A company's total cost of inventory was $305,000 and its market value is $297,000.Under the lower cost or market,the amount reported should be $305,000.

Accepted Answer

Under the lower cost or market rule, inventory should be reported at the lower of its cost or market value. In this case, the market value of the inventory is lower, so it should be reported at $297,000.

Quiz 5: Reporting and Analyzing Inventories