Question

True or False

1. Unsold consigned merchandise should be included in the consignee’s inventory.
2. If ending inventory for the year is understated, net income for the year is overstated.
3. In the inventory for the year is overstated, owner’s equity reported on the balance sheet at the end of the year is understated.
4. The specific identification inventory method should be used when the inventory consists of identical. Low cost units that are purchased and sold frequently.
5. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the LIFO method of costing inventory is based on the assumption that costs are charged against revenues in the reverse order in which they were incurred.
6. When using the FIFO inventory costing method the most recent costs are assigned to the cost of goods sold.
7. FIFO is the inventory costing method that follows the physical flow of the goods
8. If the Perpetual inventory system is used and a physical count disclosed a shortage, the cost of merchandise sold should be debited and the merchandise inventory account credited.
9. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise.
10. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger.
11. The LIFO cost of ending inventory will be the same for a periodic inventory system and a perpetual inventory system.
12. One difference between the periodic and the perpetual inventory systems is that under the perpetual method the purchases account is not used.

Answer 1

1. Unsold consigned merchandise should be included in the consignee’s inventory. False.
2. If ending inventory for the year is understated, net income for the year is overstated. False, net income is also understated.
3. In the inventory for the year is overstated, owner’s equity reported on the balance sheet at the end of the year is understated. False, it will also be overstated
4. The specific identification inventory method should be used when the inventory consists of identical. Low cost units that are purchased and sold frequently. False
5. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the LIFO method of costing inventory is based on the assumption that costs are charged against revenues in the reverse order in which they were incurred. True
6. When using the FIFO inventory costing method the most recent costs are assigned to the cost of goods sold. False, earliest costs are assigned.
7. FIFO is the inventory costing method that follows the physical flow of the goods False
8. If the Perpetual inventory system is used and a physical count disclosed a shortage, the cost of merchandise sold should be debited and the merchandise inventory account credited. True
9. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise. True
10. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger. True
11. The LIFO cost of ending inventory will be the same for a periodic inventory system and a perpetual inventory system. False
12. One difference between the periodic and the perpetual inventory systems is that under the perpetual method the purchases account is not used. True