CHAPTER 6

During periods of declining purchase prices, LIFO produces the lowest amount of ending inventory relative to the other inventory costing methods.

False

If ending inventory is understated, then cost of goods sold is understated.

False

Sales discounts decrease the cost of inventory acquired.

False

Under a perpetual inventory system, each time goods are purchased, the inventory account is transferred to sales revenue.

False

Under the FIFO method of inventory costing, the units in the ending inventory represent the oldest purchase(s).

False

When the shipping terms are FOB destination, the buyer must record transportation costs as an additional cost of acquiring the inventory under the perpetual inventory system.

False

Cost of goods sold is the difference between costs of goods available for sale and ending inventory.

True

For a merchandising company, the cost of goods sold is subtracted from net sales to arrive at gross profit.

True

The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.

True

The difference between the FIFO, LIFO, and average cost methods is that each of these methods of inventory costing makes a specific assumption about the flow of costs.

True

The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.

True

Under a periodic inventory system, the Purchases account accumulates the cost of the inventory acquired during the period.

True

Under the periodic inventory system, a physical inventory must be taken to determine cost of goods sold.

True

When merchandise is sold FOB destination, the seller is responsible for the shipping costs.

True

With the perpetual inventory system, the inventory account is updated after each sale or purchase.

True