Accounting Test 3
Which inventory costing method 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
Which inventory cost method assigns the cost of the most recent items purchased to the cost of goods sold?
LIFO
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
For which type of merchandise would a company most likely use the specific identification method of inventory costing?
Fine jeweler
Net Purchases formula
Gross Purchases + Transportation-in - Purchase R&A - Purchase Discounts
Transportation-in is
part of the cost of net purchases
Transportation-in is...
part of the cost of net purchases
Which inventory costing method results in the highest inventory balance during a period of rising prices?
FIFO
Which is true?
Changing inventory costing methods violates consistency
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 ending inventory?
FIFO
Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending inventory was overstated by $5,000
assets and equity would have been overstated by $5,000 on the balance sheet; expenses would have been understated by $5,000 on the income statement, thus net income would have been OVERSTATED by $5,000
What effects occur on a store's retail store's accounting equation when it records purchase of merchandise on account, assuming the use of the perpetual inventory system?
assets and liabilities increase
If the amount assigned to ending inventory costing method is incorrect, then
both the balance sheet and income statement are affected
Which 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 system c. a cost of goods sold account is updated after each sale of merchandise under the periodic inventory system
c.
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-cost-or-market rule, which is usually increased?
cost of goods sold
If a company understates its inventory, what are the effects of cost of goods sold and net income for the current year?
cost of goods sold will be overstated and net income will be understated
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
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 and amount of inventory carried
what effect's on a retail store's accounting equation when the retail store pays a third-party carrier to transport inventory to a warehouse?
no net effect
Polled Company started business at the beginning of 2012. Polled selected the FIFO method for its inventory costing. The profits will maximize for 2012 under this method, in a period of..
rising prices
The cost of goods sold is equal to
the cost of goods available for sale less ending inventory
Which is true about the application of the lower-of-cost-or-market method?
the lower-of-cost-or-market method is an exception to the historical cost principle
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 conservation principle