ch06tif_6 - CHAPTER 6 Accounting for Merchandise Inventory...

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Chapter 6 / Exercise E6-14
Survey of Accounting
Warren
Expert Verified
CHAPTER 6Accounting for Merchandise InventoryLEARNING OBJECTIVES1.Compute perpetual inventory amounts under FIFO, LIFO, and average cost.2.Record perpetual inventory transactions.3.Compare the effects of FIFO, LIFO, and average costing.4.Compare periodic inventory amounts under FIFO, LIFO, and average cost.5.Apply the lower-of-cost-or market rule to inventory.6.Determine the effects of inventory errors.7.Estimate ending inventory by the gross profit method.TRUE/FALSE1.Companies determine the number of units from perpetual inventory records backed up by a physical count.True
L.O. 1EasyPage: 249 2.FIFO and LIFO inventory costing methods are exact opposites of each other.
L.O. 1EasyPage: 2503.When using a perpetual inventory system, a business will debit inventory and credit cost of goods sold each time a sale is recorded.
L.O. 2ModeratePage: 2514.With the increased availability of relatively inexpensive accounting software, many businesses have switched to perpetual inventory systems.
L.O. 2EasyPage: 2565.If a perpetual inventory system is used, cost of goods sold appears on the balance sheet.False
L.O. 2ModeratePage: 2486.Under the FIFO method, ending inventory is valued based on the most recent purchases.
ModeratePage: 2507.When prices are rising, LIFO generally results in the lowest taxable income, and therefore helps reduce taxes paid.
L.O. 3ModeratePage: 2548.FIFO will report the lowest cost of goods sold on the income statement when prices are falling.155
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Survey of Accounting
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Chapter 6 / Exercise E6-14
Survey of Accounting
Warren
Expert Verified
L.O. 3DifficultPage: 2549.LIFO results in a more accurate portrayal of ending inventory on the balance sheet than does FIFO.False
L.O. 3DifficultPage: 25210.LIFO matches cost of goods sold to sales on the balance sheet better than FIFO.
L.O. 3DifficultPage: 25411.When prices are falling, the LIFO method results in the lowest taxable income and thus the lowest income taxes.
L.O. 3ModeratePage: 25412.The LIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.
ModeratePage: 25413.In a periodic inventory costing system, cost of goods available for sale divided by the number of units available for sale equals the unit cost at the beginning of the period.False
L.O. 4ModeratePage: 25614.Under a periodic inventory costing system, companies continually record cost of goods sold.
L.O. 4ModeratePage: 25615.The lower-of-cost-or-market rule is a good example of conservatism in accounting.
L.O. 5EasyPage: 25916.When applying LCM rules to ending inventory valuation, market value generally refers to the company's current selling price for its inventory.
L.O. 5ModeratePage: 25917.Understating beginning inventory in the current year will understand cost of goods sold in the current year.

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