Ch. 5 Quiz – Flashcards
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Generally accepted accounting principles require that the inventory of a company be reported at:
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lower of cost or market.
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Damaged and obsolete goods:
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are included in inventory at their net realizable value.
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The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory is the:
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specific identification method.
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In applying the lower of cost or market method to inventory valuation, market is defined as:
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current replacement cost.
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Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?
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FIFO
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The full disclosure principle:
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requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made, and its effect on net income.
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During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
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LIFO method.
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Physical inventory counts:
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are necessary to measure and adjust for inventory shrinkage.
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The inventory valuation method that results in the lowest taxable income in a period of inflation is:
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LIFO method.
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The understatement of the beginning inventory balance causes:
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cost of goods sold to be understated and net income to be overstated.
