Chapter 7 ACCT 2110

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

FIFO

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

LIFO

Ahi Corporation returned damaged merchandise and was granted an adjustment. What effect does the merchandise return have on Ahi's accounting equation?

assets and liabilities decrease

if the amount assigned to ending inventory is incorrect, then

both the balance sheet and income statement are affected

what is true about changing inventory costing methods

changing inventory costing methods violates consistency

augustus inc. buys designer clothing to sell in its retail stores. since much of the merchandise comes from NYC, augustus must pay freight charges to get the merchandise shipped in. which of the following is true?

transportation-in is included in the total cost of purchases used to determine cost of goods sold in a periodic system

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

weighted average

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

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

FIFO

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

cost of goods sold is equal to

cost of goods available for sale minus ending inventory

in recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is

debit cost of merchandise sold, credit merchandise inventory

it is discovered that 2012 ending inventory was overstated. what are the financial statement effects from this error?

expenses will be overstated and net income will be understated

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 days in inventory ratio

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

transportation-in is

part of the cost of net purchases

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

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 the company is using

the periodic inventory system

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 decline below their cost, which method would be the most appropriate in complying with GAAP?

lower of cost or market

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

inventory turnover

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

a purchases account is used only under what system

periodic

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

cost of goods sold

when inventories are written down due to the application of the lower of cost or market rule, which is usually increased?

cost of goods sold

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