AC Exam #2 (CH.7)

Which of these would explain an increase in a company's inventory turnover ratio? - A decrease in total inventory - A decrease in cost of goods sold - An increase in the demand for the company's products

- A decrease in total inventory - An increase in the demand for the company's products

Which of these might cause the value of inventory to fall below its original cost? - Increased competition - Obsolescence from going out of style - Damage - Decrease in gross profit

- Increased competition - Obsolescence from going out of style - Damage

The weighted average cost method uses the weighted average cost to calculate the value of ______ & _______

- Inventory - Cost of Goods Sold

Which of the following may occur with a higher inventory turnover ratio? - Reduction in bad debt expense - Reduction in sales allowances - Reduction in obsolescence - Reduction in inventory storage costs

- Reduction in obsolescence - Reduction in inventory storage costs

The assumption that a company makes about its inventory cost flow has ______ - an effect on the company's balance sheet - no effect on the company's income statement - an effect on the company's income statement - no effect on the company's balance sheet

- an effect on the company's balance sheet - an effect on the company's income statement

_______ Inventory consists of products acquired in a finished condition, ready for sale without further processing

Merchandise

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?

Only the items that have market values lower than the costs will be written down

In times of rising prices, why would a company choose LIFO over FIFO

LIFO would result in a higher Cost of Goods Sold making the Income Tax Expense lower than FIFO

A ______ inventory turnover ratio may result in a reduction in storage and obsolescence costs as well as reduced borrowing.

higher

When costs to purchase inventory are rising, using LIFO leads to reporting ______ cost of goods sold and ______ net income than FIFO.

higher; lower

If a company were to ignore the fact that the market value of its inventory is lower than its cost, then ______.

its assets and stockholders' equity would be overstated

LIFO uses the ______ unit costs for Cost of Goods Sold on the income statement and the ______ unit costs for Inventory on the balance sheet.

newest; oldest

FIFO uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.

oldest; newest