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The lower of cost and net realizable value should be

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123)124)The lower of cost and net realizable value should be applied to the total inventory, ratherthan to individual inventory items.124)125)When the value of inventory is lower than its cost, the inventory is written down to itsnet realizable value.125)126)If net realizable value of the inventory is lower than its cost, the total assets on thestatement of financial position and net earnings on the statement of earnings will bereduced.126)127)Inventory that originally cost $100 had been written down to its net realizable value(NRV) of $75. Subsequently, the NRV of the inventory recovered to equal its cost of$100. In this situation, the amount of the $25 ($100 - $75) prior write-down in valueshould be reversed.127)18
128)An inventory write-down from cost to net realizable value should not be made in theperiod in which the price decline occurs.128)129)In the average cost formula used in a periodic inventory system, the same weightedaverage cost per unit is used to calculate all of the goods sold during the period.129)130)When the average cost formula is applied in a periodic inventory system, the sale ofgoods during the year will change the unit cost used for calculating ending inventory.130)131)When the average cost formula is applied in a periodic inventory system, a movingaverage cost per unit is calculated after each purchase.131)132)The results under FIFO in a perpetual inventory system are the same as in a periodicinventory system.132)133)All three methods of inventory cost determination will produce the same cumulative costof goods sold over the life cycle of the business.133)134)The appearance of a purchases account in a trial balance usually indicates that thecompany is using a periodic inventory system.134)135)When a periodic inventory system is used, a sales transaction requires two journalentries, while under the perpetual system, a sales transaction requires only one journalentry.135)136)Under the periodic inventory system, the balance in the inventory account changes eachtime a purchase or sale is recorded.136)137)Purchases, returns and allowances should be added to the cost of purchases on theincome statement, assuming the periodic inventory system is used.137)138)When a perpetual inventory system is used, the purchases returns and allowancesaccount will not be part of the general ledger accounts.138)139)Purchases discounts should be recorded as an addition to the cost of purchases in thecalculation of cost of goods sold.139)19
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Term
Fall
Professor
Clark
Tags
Beginning Inventory, a Dr Inventory, Shilling Company, B Dr Inventory

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