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28 terms

Acct 315- Chapter 9

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The term "market" in the phrase "lower-of-cost-or-market" generally means the
replacement cost.
The lower limit (floor) for inventory valuation is defined as the selling price less
a normal profit margin.
If the replacement cost of an inventory item is less than the floor value but higher than its cost, the inventory item would be valued at
cost
The most common method of applying the lower-of-cost-or-market rule is by
an item-by-item basis.
All of the following accounts are used under a perpetual inventory system...
COGS, inventory, sales
An inventory method that makes it possible to manipulate net income is the
Specific identification method.
The ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the
FIFO method
In a period of rising prices, the inventory method that produces the lowest ending inventory is the
LIFO method
An erosion of LIFO inventory layers is referred to as a LIFO
liquidation.
Under the dollar-value LIFO method, increases and decreases in an inventory pool are determined and measured in terms of
total dollar value.
All of the following are advantages of LIFO
recent costs are matched against current revenues, a deferral of income tax occurs as long as the price level increases, an improvement of cash flow.
The gross profit method cannot be used
for financial reporting purposes.
The inventory turnover ratio is computed by dividing
cost of goods sold by average inventory.
Which of the following would not be included in a manufacturing company's balance sheet?
merchandise inventory
The buyer would report the inventory in its balance sheet for goods
purchased on installment
If the beginning inventory is understated,
Net income is overstated.
Which of the following inventory systems requires that Cost of Goods Sold be debited each time a sale is made?
perpetual
Which of the following should be included in a company's ending inventory?
Goods out on consignment.
A gasoline station would be most likely to use which of the following cost flow assumptions?
average
Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?
Specific Identification
Companies use LIFO for external reporting and one of the other cost flow assumptions for internal reporting for all of the following except
profit sharing is often based on LIFO assumptions.
All of the following are major disadvantages of using LIFO
lower profits reported in inflationary times, doesn't approximate the physical flow of inventory,
inventory is understated
In applying the lower-of-cost-or-market method, market is represented by
current replacement cost, net realizable value, net realizable value less a normal profit margin.
The buyer would not report the inventory in its balance sheet for items
held on consignment.
Freight charges on goods purchased are accounted for as
product costs.
In a period of rising prices, the inventory method that produces the highest ending inventory is the
FIFO perpetual method.
A new layer is formed under dollar-value LIFO when the ending inventory at
base-year prices exceeds the beginning inventory at base-year prices.
The approach employed by most companies that currently use the LIFO method is
dollar-value LIFO.