Question 1

The assignment of costs to the cost of goods sold and to inventory under FIFO is the same for both the perpetual and periodic inventory systems.

Accepted Answer

The assignment of costs to the cost of goods sold and to inventory under FIFO is independent of the inventory system used and is the same for both the perpetual and periodic inventory systems.

Question 2

The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.

Accepted Answer

The inventory valuation method determines the value assigned to each unit of inventory, which in turn affects the cost of goods sold and gross profit calculations. Different valuation methods, such as First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Average Cost, can result in significantly different cost of goods sold and gross profit figures. Therefore, the choice of inventory valuation method can have a substantial impact on a company's financial statements and overall profitability.

Question 3

In applying the lower of cost or market method to inventory valuation,market is defined as the current selling price.

Accepted Answer

The answer of In applying the lower of cost or...

Question 4

When units are purchased at different costs over time,it is simple to determine the cost per unit assigned to inventory.

Accepted Answer

When units are purchased at different costs over time, it becomes complex to determine the cost per unit assigned to inventory, as it involves methods like weighted average method or first-in, first-out (FIFO) method.

Question 5

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Accepted Answer

The answer of The retail inventory method estimates the cost...

Question 6

A company's cost of inventory was $317,500.Due to phenomenal demand for this product,the market value of its inventory increased to $323,000.According to the consistency principle,this company should write up the value of its inventory.

Accepted Answer

The answer of A company's cost of inventory was $317,500.Due...

Question 7

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

Accepted Answer

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases for the period, rather than at the point of each sale.

Question 8

The conservatism constraint requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely,then the less optimistic amount is used.

Accepted Answer

The statement accurately describes the conservatism constraint, which requires that when uncertainty exists, a company should err on the side of caution and use the less optimistic (i.e. more conservative) estimate.

Question 9

LIFO assumes that inventory costs flow in the order they were incurred.

Accepted Answer

The answer of LIFO assumes that inventory costs flow in...

Question 10

The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.

Accepted Answer

The answer of The lower of cost or market rule...

Question 11

Under LIFO,the most recent costs are assigned to ending inventory.

Accepted Answer

Under LIFO (Last In, First Out), the most recent costs are assigned to the cost of goods sold, while the older costs remain in ending inventory.

Question 12

The assignment of costs to cost of goods sold and to inventory using specific identification is the same for both the perpetual and periodic systems.

Accepted Answer

The assignment of costs to cost of goods sold and to inventory using specific identification is independent of the system used to track inventory, whether periodic or perpetual.

Question 13

Three key variables determine the dollar value of inventory: (1)inventory quantity,(2)costs of inventory,and (3)cost flow assumption.

Accepted Answer

These three variables do indeed determine the dollar value of inventory. The quantity of inventory on hand multiplied by its unit cost equals the total cost of inventory, and then this cost may be further impacted by the chosen cost flow assumption method (such as FIFO or LIFO).

Question 14

Monthly or quarterly statements are called interim statements because they are prepared between the traditional annual statement dates.

Accepted Answer

Interim statements are indeed prepared between annual statement dates, hence they are called interim statements.

Question 15

The dollar value assigned to goods purchased will differ under the different inventory valuation methods of specific identification,FIFO,LIFO,and weighted average.

Accepted Answer

The answer of The dollar value assigned to goods purchased...

Question 16

In applying the lower of cost or market method to inventory valuation,market is defined as the current replacement cost.

Accepted Answer

According to GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards), in applying the lower of cost or market method, "market" refers to the current replacement cost of inventory. Therefore, the statement is true.

Question 17

The matching principle requires that the inventory valuation method follow the physical flow of inventory.

Accepted Answer

The answer of The matching principle requires that the inventory...

Question 18

The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

Accepted Answer

The answer of The FIFO inventory method assumes that costs...

Question 19

A company has inventory with a market value of $217,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $217,000.

Accepted Answer

Lower of cost or market means that inventory should be valued at whichever is lower between its cost and its market value. In this case, the market value is $217,000 which is lower than the cost of $241,000, so the inventory should be written down to $217,000.

Question 20

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used

Accepted Answer

In a perpetual system, the weighted average cost is recalculated after every transaction, while in a periodic system, the cost is calculated at the end of each accounting period. This difference in timing can result in different cost of goods sold and inventory values.

Quiz 5: Inventories and Cost of Sales