09-Inventories - True-False 1 Periodic inventory systems...

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True-False 1 Periodic inventory systems provide a greater degree of management control over inventory. 2 In the perpetual inventory system inventory losses must be recoded in the accounts. 3 In a periodic inventory system the ending inventory must be determined by physical count. 4 A periodic system of inventory is used when inventory volumes are low and per unit costs are high. 5 Inventory shipped on consignment is owned by the consignee. 6 Inventory carrying cost includes storage costs. 7 Under absorption costing all costs are inventoried. 8 Variable costing is an acceptable costing method for GAAP. 9 Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported income tends to decrease. 10 Beginning inventory plus inventory purchases equals cost of goods sold. 11 GAAP does not require the cost flow assumption to conform to the actual physical flow of the goods. 12 FIFO matches current costs with current revenues. 13 The input cost changes that occur after the purchase of inventory items in a current cost accounting system are recognized as unrealized holding gain. 14 Under GAAP, current cost accounting may or may not be used at the discre- tion of management. 15 The primary difference b etween FIFO and LIFO is that each method makes a different choice regarding which element is shown at the out of date cost. 16 The formula to convert the cost of goods sold LIFO to an estimate of the cost of goods sold FIFO is cost of goods sold LIFO – increase in LIFO reserve = cost of goods sold FIFO. 17 Firms that use LIFO must disclose the dollar magnitude of the difference between LIFO and FIFO cost. 18 As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is lower than normal. 19 Current ratio distortion under LIFO inventory costing may be adjusted by subtracting the LIFO reserve from current assets. 20 U. S. tax rules specify that if LIFO is used for tax purposes, the external fi- nancial statements must also use LIFO. 21 During periods of rising inventory costs, LIFO cost of goods sold is under- stated because of the inventory holding gains that have occurred during the period. 22 An overstatement of ending inventory leads to an overstatement of cost of goods sold. 23 In the lower of cost or market determination, the ceiling is the inventory’s net realizable value. 24 The use of the lower of cost or market method to value inventory for report- ing purposes employs the accounting principle of matching. 25 A price index is a ratio that compares prices during the current year with prices during a base period. 26 The time at which initial adoption of dollar-value LIFO takes place is called
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09-Inventories - True-False 1 Periodic inventory systems...

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