ACCT 105

In a period of constant prices, FIFO and LIFO will give identical results.

True

Errors in determining the cost of the ending inventory lead to a balance sheet that does not balance and are thus readily observed.

False

In a period of falling prices, FIFO will result in a higher net income figure than that resulting from LIFO.

False

Inventory costing methods can be changed at will to control reported net income.

False

Inventory costs include only the seller's invoice price less any purchase discounts.

False

The gross margin method of determining an inventory produces precisely accurate results.

False

The gross margin method uses the gross margin rate of the current period in estimating the cost of inventory.

False

When the perpetual inventory method is used, it is never necessary to count merchandise on hand.

False

The following principle requires a company to show in its financial statements by means of a footnote or other manner, the inventory costing method used:

full-disclosure principle.

The system that continuously provides the cost of the inventory on hand is called:

perpetual

An advantage of using LIFO is that the balance sheet valuation for inventory is based on an up-to-date cost.

False

An overstated ending inventory leads to understated net income.

False

An overstatement of the beginning inventory will result in an overstatement of the net income for the period.

False

Because of the importance of consistency, a company may not change inventory costing methods unless the prior method is one that is unacceptable to the accounting profession.

False

If the beginning inventory exceeds the ending inventory, the net income is overstated.

False

The closing entries necessary under the perpetual and periodic inventory procedures do not differ because all expenses and revenues must be closed.

False

The ending inventory and cost of goods sold will be the same under LIFO perpetual and LIFO periodic.

False

The retail inventory method can be used at the end of any period except the end of the fiscal year.

False

On January 1, 2007, Nichols Company's inventory of Item X consisted of 2,000 units that cost $8 each. During 2007 the company purchased 5,000 units of Item X at $10, each, and it sold 4,500 units. Periodic inventory procedure is used. Cost of ending inventory using FIFO is:

$25,000.

During a period of falling prices, FIFO yields the greatest cost of goods sold.

True

If prices are steadily rising or falling, the use of the weighted-average method will yield a cost for inventory between those yielded by FIFO and LIFO.

True

If the utility or value of inventory items is less than the cost of those items, departures from cost are justified.

True

Income cannot be manipulated by the timing of purchases if the FIFO method is used.

True

The net realizable value of an inventory item can never be greater than its expected selling price.

True

The two bases of inventory pricing most widely used are cost and lower-of-cost-or-market.

True

When a company changes from one inventory costing method to another, the change must be fully disclosed in a footnote to the financial statements explaining the reasons for the change and the effect on net income.

True

When prices are rising, higher income will be reported using FIFO as compared with using LIFO.

True

When the periodic method of inventory accounting is used, purchases are recorded in the Inventory account.

True

Whether or not a company uses the lower-of-cost-or-market method of valuing inventory is usually disclosed in a footnote to the financial statement.

True

For 2007, Johnson Company had the following: beginning inventory - $780,000; ending inventory - $830,000; and cost of goods sold - $215,000. The inventory turnover ratio is:

.267

During a period of rising prices, which inventory costing method might be expected to give the lowest valuation for inventory on the balance sheet?

LIFO

An error in determining the cost of the ending inventory of a period generally results in misstated income for two periods.

True

If the ending inventory is overstated by $100, the net income will be:

overstated by $100.