ACCT 2110 CH. 6 MC

The difference between the inventory reported on the balance sheet by LIFO basis and what inventory would be if reported on a FIFO basis is called a(n) ____________________.

LIFO reserve

Which one of the following statements regarding changing inventory costing methods is true?

changing inventory costing methods violates consistency

When inventories are written down due to the application of the lower-of-cost-or-market (LCM) rule, which of the following is usually increased?

cost of goods sold

The amount of inventory expensed during the year is reported on the income statement as

cost of goods sold.

Cost of goods sold is equal to the beginning inventory plus the cost of net purchases minus ____________________.

ending inventory

Transportation-in is

part of the cost of net purchases

Under the ____________________ inventory system, the inventory account is updated after each purchase or sale

perpetual

Pollet Company started business at the beginning of 2012. Pollet selected the FIFO method for its inventory costing. The profits will maximize for 2012 under this method, in a period of:

rising prices

A departure from the cost basis of accounting may be necessary when the ____________________ of the inventory is less than its cost to the company

market value

The days-in-inventory ratio

measures the length of time it takes to acquire, sell, and replace the inventory

Inventory turnover

measures the relationship between the volume of goods sold and amount of inventory carried

An overstatement error in the inventory account in the current period will result in an understatement of____________________ in the next period

net income

The understatement of ending inventories in one period leads to a(n) ____________________ of cost of goods sold in the same period

overstatement

What effects occur on a retail store's accounting equation when it records purchase of merchandise on account, assuming the use of a perpetual inventory system?

Assets and liabilities increase

If a company understates its inventory, what are the effects on cost of goods sold and net income for the current year?

Cost of goods sold will be overstated and net income will be understated

During a period of increasing purchase prices, which inventory costing method will yield the lowest cost of goods sold?

FIFO

The ____________________ method calculates cost of goods sold based on the assumption that the first unit of inventory purchased is the first unit sold

FIFO

Which inventory cost flow method assigns the cost of the most recent items purchased to ending inventory?

FIFO

Which inventory costing method results in the highest inventory balance during a period of rising purchase prices?

FIFO

When the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP?

Lower-of-cost-or-market

Which method of inventory costing is not acceptable for financial accounting purposes?

Retail cost

Which inventory cost flow method assigns the average unit cost to all units whether sold or left in ending inventory?

Weighted Average

The cost of goods sold is equal to

the cost of goods available for sale less ending inventory

Which of the following statements regarding the application of the lower-of-cost-or-market method is true?

the lower-of-cost-or-market method is an exception to the historical cost principle

If a company does not update the inventory and cost of goods sold accounts during the period, it means company is using:

the periodic inventory system.

Which of the following statements is false? A. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system. B. The inventory account is updated only at the end of the accounting period under the periodic inventory system. C. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system. D. A purchases account is used only under the periodic inventory system

A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system

For which type of merchandise would a company most likely use the specific identification method of inventory costing?

Fine jeweler

How are purchase returns and purchase discounts recorded by a company using the periodic inventory system?

In contra-accounts to the Purchases account

The ____________________ method calculates cost of goods sold based on the assumption that the last unit of inventory purchased is the first unit sold.

LIFO

Which inventory cost flow method assigns the cost of the most recent items purchased to cost of goods sold?

LIFO

What effects on a retail store's accounting equation occur when the retail store pays a third-party carrier to transport inventory to its warehouse?

No net effect

The lower-of-cost-or-market rule applies to the write-down of inventory values when market value exceeds cost. Why does this rule not allow for write-ups in inventory value?

Writing up inventory to market value would be inconsistent with the conservatism principle.

A company can calculate its days-in-inventory ratio by dividing the 365 days per year by its ____________________.

inventory turnover ratio

The ratio of a company's cost of goods sold to its average inventory is called its ____________________

inventory turnover ratio

If the amount assigned to ending inventory is incorrect, then

both the balance sheet and income statement are affected