Question

Answer T or F

1. Transportation-in is considered a cost of purchasing inventory

2. In many retail businesses, inventory is the largest current asset.

3. As inventory is sold in many retail businesses, the largest expense is created.

4. The cost of merchandise is inventory is limited to the purchase price less any purchase discounts.

5. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.

6. One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

7. A detective internal control is designed to find an error or misstatement after it has occurred.

8. A perpetual inventory system is an effective means of control over inventory.

9. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

10. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer’s place of business.

11. Purchased goods in transit should be included in the ending inventory if the goods were shipped FOB shipping point.

12. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory.

13. A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.

14. Unsold consigned merchandise should be included in the consignee’s inventory.

15. If ending inventory for the year is understated, net income for the year is overstated.

16. In the inventory for the year is overstated, owner’s equity reported on the balance sheet at the end of the year is understated.

17. The specific identification inventory method should be used when the inventory consists of identical. Low cost units that are purchased and sold frequently.

18. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the LIFO method of costing inventory is based on the assumption that costs are charged against revenues in the reverse order in which they were incurred.

19. When using the FIFO inventory costing method the most recent costs are assigned to the cost of goods sold.

20. FIFO is the inventory costing method that follows the physical flow of the goods

21. If the Perpetual inventory system is used and a physical count disclosed a shortage, the cost of merchandise sold should be debited and the merchandise inventory account credited.

22. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise.

23. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger.

24. The LIFO cost of ending inventory will be the same for a periodic inventory system and a perpetual inventory system.

25. One difference between the periodic and the perpetual inventory systems is that under the perpetual method the purchases account is not used.

Answer 1

Answer:

1.True.Transportation brings the inventory to its place of production thus contributes to cost

2.True.Inventory forms the base for production which is sold to make profits so it has to be largest current asset.

3.True.Inventory being the base of sales in business any cost related to inventory will be largest

4.False.Purchase Returns too is deducted to get cost of merchandise.Freight in is added and many more costs

5.False . Physical inventory counting is important for any inventory method.

6.True.To give the stakeholders a true and fair view about the financial statements

7.True.Detective approach is always used after the problem or loss has occurred.

8.True.Because inventory is recorded as and when the changes occur.

9.True.

10.False.The title passes as soon as shipment of goods leaves seller's warehouse.

11.False.This would be correct under FOB Destination

12.True.Because Title passes on delivery.

13.True.

14.False.It should be included in Consignor's Inventory

15.False.Net Income would be understated.

16.False.It will be ovestated as the ending Inventory forms part of profit

17.False.

18.True.As LIFO follows Last in First Out

19.False.Earliest costs are assigned to cost of goods sold.

20.True.

21.True.

22.True.

23.True

24.False.LIFO periodic does not take into account the exact dates involved.

25.True.