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