Accounting Ch. 20

The FIFO method is based on the assumption that the merchandise purchased first is the merchandise (A) sold first (B) sold last (C) in ending inventory (D) none of these.

(A) sold first

In a year of falling prices, the inventory method that gives the highest possible value for ending inventory is (A) weighted-average (B) LIFO (C) FIFO (D) gross profit.

(B) LIFO

When the LIFO method is used, ending inventory units are priced at the (A) average price (B) earliest price (C) most recent price (D) none of these.

(B) earliest price

The LIFO method is based on the assumption that the merchandise purchased first is the merchandise (A) sold first (B) sold last (C) that cost the most (D) none of these.

(B) sold last

When the FIFO method is used, cost of merchandise sold is priced at (A) the average price (B) the earliest price (C) the most recent price (D) none of these.

(B) the earliest price

Using the price of merchandise purchased first to calculate the cost of merchandise sold first.

FIFO

Using the price of merchandise purchased last to calculate the cost of merchandise sold first.

LIFO

A perpetual inventory system provides day-to-day information about the quality of merchandise on hand. (true/false)

false

The first-in, first-out (FIFO) method is used to determine the quantity of each type of merchandise on hand. (true/false)

false

The net income of a business can be increased by maintaining a merchandise inventory that is larger than needed. (true/false)

false

The only financial statement on which the value of merchandise on hand is reported is the income statement. (true/false)

false

Estimating inventory by using the previous year's percentage of gross profit on operations.

gross profit method of estimating inventory

A form used during a physical inventory to record information about each item of merchandise on hand.

inventory record

Using the lower of cost or market price to calculate the cost of ending merchandise inventory.

lower of cost or market

The price that must be paid to replace an asset.

market value

A file of stock records for all merchandise on hand.

stock ledger

A form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand.

stock record

A merchandise inventory evaluated at the end of a fiscal period is known as a periodic inventory. (true/false)

true

A minimum inventory balance is the amount of merchandise that will typically last until ordered merchandise can be received from vendors. (true/false)

true

A periodic inventory conducted by counting, weighing, or measuring items of merchandise on hand is also called a physical inventory. (true/false)

true

Many merchandising businesses use a POS terminal to read UPC codes on products and update the stock ledger. (true/false)

true

Merchandise inventory on hand is typically the largest asset of a merchandising business. (true/false)

true

The gross profit method makes it possible to prepare monthly income statements without taking a physical inventory. (true/false)

true

Using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold

weighted-average inventory costing method

A business that uses the same inventory costing method for all fiscal periods is applying the accounting concept (A) Consistent Reporting (B) Accounting Period Cycle (C) Perpetual Inventory (D) Adequate Disclosure.

(A) Consistent Reporting

In a year of rising prices, the inventory method that gives the highest possible value for ending inventory is (A) FIFO (B) LIFO (C) weighted-average (D) gross profit.

(A) FIFO

Calculating an accurate inventory cost to assure that gross profit and net income are reported correctly on the income statement is an application of the accounting concept (A) Consistent Reporting (B) Perpetual Inventory (C) Adequate Disclosure (D) none of the above.

(C) Adequate Disclosure

Using an inventory costing method to charge costs of merchandise against current revenue is an application of the accounting concept (A) Adequate Disclosure (B) Consistent Reporting (C) Matching Expenses with Revenue (D) none of these.

(C) Matching Expenses with Revenue

The weighted-average method is based on the assumption that the cost of merchandise sold should be calculated using the (A) average price per unit of beginning inventory (B) average price of ending inventory (C) average price of beginning inventory plus purchases during the fiscal year (D) average price of ending inventory plus purchases during the fiscal period.

(C) average price of beginning inventory plus purchases during the fiscal year

When the weighted-average method is used, units sold are priced at (A) the earliest price (B) the most recent price (C) the average price (D) none of these.

(C) the average price

When the FIFO method is used, cost of merchandise sold is valued at (A) the average cost (B) the most recent cost (C) the earliest cost (D) none of these.

(C) the earliest cost