Question

(T / F) If ending inventory is understated, cost of goods sold is understated, resulting in an overstatement of gross margin, net income, and retained earnings.

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True

False

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(T / F) When ending inventory is misstated in the current year, companies carry that misstatement forward into the next year.

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True

False

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(T / F) Specific identification attaches actual cost of each unit of product to units in ending inventory and cost of goods sold.

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False

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(T / F) FIFO assumes that the costs of the first goods purchased are those charged to cost of goods sold when goods are sold. During periods of rising prices, FIFO creates higher net income since the costs charged to cost of goods sold are lower.

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True

False

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(T / F) LIFO (last-in, first-out): Ending inventory consists of the oldest costs.

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True

False

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(T / F) Perpetual inventory procedure requires an entry to Merchandise Inventory whenever goods are purchased, returned, sold, or otherwise adjusted, so that inventory records reflect actual units on hand at all times. Thus, an entry is required to record cost of goods sold for each sale.

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(T / F) Inventory turnover ratio = (Cost of goods sold) / (Average inventory )

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(T / F) Inventory turnover measures the efficiency of the firm in managing and selling inventory. It gauges the liquidity of the firm's inventory.

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True

False

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(T / F) Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross margin and net income.

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True

False

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(T / F) In a period of rising prices, FIFO results in the lowest cost of goods sold.

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True

False

Answer 1

1

(T / F) If ending inventory is understated, cost of goods sold is understated, resulting in an overstatement of gross margin, net income, and retained earnings.

Statment is False

If ending inventory is understated cost of goods will increase and Net income will reduce

2

When ending inventory is misstated in the current year, companies carry that misstatement forward into the next year.

Statment is True

Because the ending inventory amount of the current year is the beginning inventory amount for the next year

3

Specific identification attaches actual cost of each unit of product to units in ending inventory and cost of goods sold.

Statment is False

The specific identification method of inventory costing attaches the actual cost to an identifiable unit of product.

4

FIFO assumes that the costs of the first goods purchased are those charged to cost of goods sold when goods are sold. During periods of rising prices, FIFO creates higher net income since the costs charged to cost of goods sold are lower

Statment is True

Becasue of first goods price is lower and cost of goods is valued at fist goods price.

(T / F) LIFO (last-in, first-out): Ending inventory consists of the oldest costs.

Statment is True

Becasue cost of goods sold are valued based on latest price hence ending invetory will be valued at old price