College Accounting - Ch 6

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the materiality concept.

• True

• False

A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the conservatism​ principle, they should choose to treat it as an asset.

• True

• False

A company should not change the inventory costing method each period in order to maximize net income. This is an example of the disclosure principle.

• True

• False

Under which of the following inventory costing methods is the ending inventory valued on the cost of the most recent​ purchases?

• FIFO

• LIFO

• Weighted-average

• Specific identification

Under the last−​in, first−out ​(LIFO) method, the cost of goods sold is based on the oldest purchases.

• True

• False

Which of the following inventory costing methods yields the lowest cost of goods sold during a period of rising inventory costs?

• FIFO

• LIFO

• Weighted-average

• Specific identification

Which of the following inventory costing methods results in the lowest value of ending inventory during a period of rising inventory​ costs?

• FIFO

• LIFO

• Weighted-average

• Specific identification

If the merchandise​ inventory's market value is greater than its​ cost, then it must be adjusted for the difference in amount.

• True

• False

Under​ GAAP, which of the following amounts would be reported as Merchandise Inventory on the balance sheet of a company if the cost of an item is​ $85 and the current replacement cost is​ $70?

• $70

• $85

• $155

• $77.50

An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.

• True

• False