Accounting Chapter 5 tf
A company uses a cost flow method to allocate product costs between cost of goods sold and beginning inventory.
False
A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.
False
A loss resulting from application of the lower-of-cost-or-market rule is included in Cost of Goods Sold if the loss is material in amount.
False
During a period of rising prices, the LIFO cost flow method will result in higher total assets than FIFO.
False
Generally accepted accounting principles do not allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.
False
If a company applies the lower of cost or market rule on aggregate basis, its write-down of inventory is likely to be greater than if it applies the rule to individual items of inventory.
False
If a company uses the FIFO cost flow method for its income tax return it must also use FIFO for financial reporting.
False
If a company uses the LIFO cost flow method, it is not required by generally accepted accounting principles to apply the lower-of-cost-or-market rule.
False
The gross margin method of estimating inventory is not useful in detecting inventory fraud.
False
A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.
True
Company A and B are similar retailing businesses. A uses FIFO, B uses LIFO. In a period of rising prices, B should have a lower inventory turnover than A.
True
During a period of declining prices, a company would report a lower gross margin using the FIFO cost flow method than with LIFO.
True
During a period of rising prices, a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.
True
During a period of rising prices, the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.
True
Gaap restrict or limit a company's freedom to change accounting methods from one year to the next.
True
Gaap would allow a company to use FIFO for part of its inventory and the weighed-average cost flow assumption for the rest of its inventory.
True
If a company overstates its inventory balance at the end of 2015 due to an error its retained earnings will also be overstated on the 2015 balance sheet.
True
If the replacement cost of inventory is greater than its historical cost, the increase in value does not affect the company's financial statements.
True
In a period of rising prices, use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.
True
In most businesses, the physical flow of goods occurs on a FIFO basis, but a different cost flow method is allowed under generally accepted accounting principles.
True
International Financial Reporting Standards (IFRS) do not permit the use of the LIFO cost flow assumption.
True
One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.
True
The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.
True
The last-in, first-out cost flow method assigns the cost of the items purchased first to ending inventory.
True
The specific identification inventory method is not practical for companies that sell many low-priced, high turnover items.
True