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Chapter 8 / Exercise 40
Business Analytics: Data Analysis & Decision Making
Albright/Winston
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Financial Reporting and Analysis, 7e (Revsine) Chapter 9 Inventories 1) Cost of goods available for sale is always the same regardless of the inventory cost flow assumption in use.
2) Under a periodic inventory system, cost of goods sold automatically includes the cost of inventory "shrinkage."
3) All inventory items to which the firm has legal title should be included in the inventory account although most firms record inventory only when they physically receive it.
4) Generally accepted accounting principles do not allow variable costing to be used in external financial statements because absorption costing makes it easier for financial statement users to interpret year-to-year changes in reported net income.
5) Absorption costing makes it difficult for financial statement users to interpret year-to-year changes in cost of goods sold when production levels significantly change between one year and the next.
6) GAAP requires the cost flow assumption to correspond to the actual physical flow of inventory.
7) For ratio analysis, a distortion in the current ratio under LIFO inventory costing may be adjusted by subtracting the LIFO reserve from current assets.
8) When a LIFO firm liquidates old LIFO layers, the net income number under LIFO can be seriously distorted because the older costs in the LIFO layers that are liquidated are matched against sales dollars that are stated at higher current prices.
9) U. S. tax rules specify that if LIFO is used for tax purposes, the external financial statements must also use LIFO.
10) During periods of rising inventory costs, LIFO cost of goods sold is understated because of the inventory holding gains that have occurred during the period.
11) When using LIFO, management occasionally deliberately stops normal purchases for the last few weeks of the year in an attempt to boost profits.
12) In the Old-LCM approach to valuing inventory, the ceiling is the inventory's net realizable value.
13) For international financial reporting, the accounting standard IAS 2 permits the use of either the FIFO or weighted average cost flow assumption, but prohibits the use of LIFO.
14) IFRS only permits the use of either the FIFO or weighted average cost flow assumption.
15) Dollar-value LIFO avoids much of the detailed recordkeeping required under standard LIFO.
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Business Analytics: Data Analysis & Decision Making
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Chapter 8 / Exercise 40
Business Analytics: Data Analysis & Decision Making
Albright/Winston
Expert Verified

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