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Question(s) / Instruction(s):

21. If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

22. Under the lower of cost or market basis, market is defined as current replacement cost.

23. Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.

24. An error that overstates the ending inventory will also cause net income for the period to be overstated.

25. If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet.

26. Inventory turnover is calculated as cost of goods sold divided by ending inventory.

a27. Under generally accepted accounting principles, management has the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

a28. The retail inventory method requires a company to value its inventory on the balance sheet at retail prices.

a29. If a company uses the FIFO cost assumption, the cost of goods sold for the period will be the same under a perpetual or periodic inventory system.

a30. In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

The following questions are from the Study Guide.

s31. Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

s32. Net purchases is determined by subtracting purchase returns and allowances and purchase discounts from purchases.

s33. The cost of ending inventory is added to the cost of goods available for sale to determine cost of goods sold. s34. The pool of inventory costs consists of the beginning inventory plus the cost of goods purchased.

s35. In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

s36. The lower of cost or market basis is an example of the accounting concept of conservatism.

s37. Inventories are reported in the current asset section of the balance sheet immediately below receivables.

as38. The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

as39. In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.

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