ACCT 2 Quiz 5

LIFO reserve is the amount that inventory would change if a company used FIFO rather than LIFO cost flow method.

True

The conservatism constraint is the accounting principle that guides accountants to select the less optimistic amount when more than one estimate of amounts to be received or paid exists and these estimates are about equally likely.

True

The first-in, first-out (FIFO) method of assigning costs to both inventory and cost of goods sold assumes that inventory items are sold in the order acquired.

True

The last-in, first-out (LIFO) method of assigning costs to both inventory and cost of goods sold assumes that the latest purchases are sold first.

True

When purchasing prices do not change, each of the four inventory costing methods assigns the same cost to inventory and cost of goods sold.

True

A company that uses the last-in, first-out (LIFO) method for tax reporting, may use first-in, first-out (FIFO) for financial reporting.

False

During times of rising prices, the last-in, first-out (LIFO) method results in the highest net income.

False

Generally a company wants a lower inventory turnover.

False

Last-in, first-out (LIFO) is the most often used method of valuing inventory.

False

The inventory turnover ratio measures how many days are needed to convert the inventory into receivables or cash.

False

The matching concept prescribes that a company use the same accounting methods period after period so that the financial statements are comparable across periods--the only exception is when a change from one method will improve its financial reporting.

False

LIFO reserve is required by GAAP so that investors can compare companies using different cost flow methods.

True

Seller Company sells inventory to Buyer Company and those goods are in transit on 12/31. Which company would include the goods in their inventory on 12/31 if the terms were FOB shipping point? a) Buyer Co. b) It depends upon interstate commerce rules c) It depends upon the shipping terms d) Seller Co.

a) Buyer Co.

Lower of cost or market is a departure from the cost principle based on . . . a) Conservatism b) The matching principle c) Revenue recognition d) Going concern assumption e) Materiality

a) Conservatism

If Seller Company sells inventory to Buyer Company and those goods are in transit on a public carrier on 12/31, which company would include the items on its inventory on 12/31? a) It depends upon the shipping terms b) Buyer Co. c) Seller Co. d) It depends upon interstate commerce rules

a) It depends upon the shipping terms

Which of the following statements is true concerning the effects of inventory methods? a)LIFO assigns the highest amount to the cost of goods sold during times of rising prices, yielding the lowest net income. b)None of these. c)LIFO assigns the lowest amount to the cost of goods sold during times of rising prices. d)FIFO assigns the highest amount of cost of goods sold during times of rising prices, yielding the highest net income. e)Weighted average assigns the highest amount of cost of goods sold during times of rising prices.

a) LIFO assigns the highest amount to the cost of goods sold during times of rising prices, yielding the lowest net income.

Beginning inventory totals $100,000 and ending inventory totals $140,000 for the period and net sales are $800,000 and cost of goods sold is $600,000. What is the inventory turnover ratio? a)None of these b)5.0 c)2.00 d)6.67 e)2.25

b) 5.0

Which of the following methods of assigning costs to both inventory and cost of goods sold are in conformity with generally accepted accounting principles (GAAP)? a)Specific Identification b)FIFO & LIFO c)Weighted Average d)All of these are conformity

d) All of these are conformity

Which cost flow method is not allowed in most other countries because it allows companies to manipulate their income statement and rarely matches the physical flow of inventory? a)Specific Identification b)Weighted Average c)FIFO d)LIFO

d) LIFO

Seller Company sells inventory to Buyer Company and those goods are in transit on 12/31. Which company would include the goods in their inventory on 12/31 if the terms were FOB destination? a) It depends upon the shipping terms b) Buyer Co. c) It depends upon interstate commerce rules d) Seller Co.

d) Seller Co.

Which of the following is true about errors in the ending inventory? a)If ending inventory is understated, the Cost of Goods Sold is understated, and Net Income is overstated. b)If ending inventory is understated, the Cost of Goods Sold is overstated, and Net Income is overstated. c)If ending inventory is overstated, the Cost of Goods Sold is understated, and Net Income is understated. d)If ending inventory is understated, the Cost of Goods Sold is understated, and Net Income is understated e)If ending inventory is overstated, the Cost of Goods Sold is understated, and Net Income is overstated.

e) If ending inventory is overstated, the Cost of Goods Sold is understated, and Net Income is overstated.