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ACC201 Chapter 6

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  • 1
    Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement
  • 2
    Manufacturers usually classify inventory into two categories: finished goods and work to process
  • 3
    Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers

  • 4
    Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods
  • 5
    Work in process is that portion of manufactured inventory that has been placed into the production process but is not yet complete
  • 6
    The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale

  • 7
    Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company
  • 8
    The first-in, first-out (FIFO) inventory method results in an ending inventory values at the most recent cost
  • 9
    The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determined income
  • 10
    The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items

  • 11
    If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions
  • 12
    If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show the less gross profit for the period, than if it had used the FIFO inventory method
  • 13
    If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of good available for the sale during the period will be the same under the LIFO and FIFO inventory methods
  • 14
    A company may use more than one inventory costing method concurrently
  • 15
    Use of the LIFO inventory valuation method enables a company to report paper or phantom profits
  • 16
    If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements

  • 17
    Under the lower-of-cost-or-market basis, market is defined as current replacement cost
  • 18
    Accountants believe that the write down from cost to market should NOT be made in the period in which the price decline occurs
  • 19
    An error that overstates the ending inventory will also cause net income for the period to be overstated
  • 20
    If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet

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