What is the First-in, first-out (FIFO) method in perpetual inventory accounting?
Perpetual Inventory Accounting

Quiz
•
Business
•
12th Grade
•
Medium
Fred Pieri
Used 5+ times
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10 questions
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1.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
A Layer
D Layer
C Layer
B Layer
2.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Explain the Last-in, first-out (LIFO) method and its application in inventory accounting.
The LIFO method assumes that the first items purchased are the first ones sold, and it is used in inventory accounting to match the cost of the most recently acquired inventory against revenue first.
The LIFO method assumes that the middle items purchased are the first ones sold, and it is used in inventory accounting to match the cost of the oldest acquired inventory against revenue first.
The LIFO method assumes that the last items purchased are the first ones sold, and it is used in inventory accounting to match the cost of the most recently acquired inventory against revenue first.
The LIFO method assumes that the most expensive items purchased are the first ones sold, and it is used in inventory accounting to match the cost of the cheapest acquired inventory against revenue first.
3.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
What is the Lower of cost or market (LCM) method and how is it used in inventory valuation?
A method of valuing inventory at the highest market value to show higher profits on the balance sheet.
A method of valuing inventory at the higher of its historical cost or its market value to prevent understatement on the balance sheet.
A method of valuing inventory at the lower of its historical cost or its market value to prevent overstatement on the balance sheet.
A method of valuing inventory based on the average cost of similar items in the market.
4.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Calculate the inventory turnover ratio using the formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold + Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold * Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold - Average Inventory
5.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
How does the FIFO method affect the cost of goods sold during periods of rising prices?
No effect on cost of goods sold
Higher cost of goods sold
Unpredictable cost of goods sold
Lower cost of goods sold
6.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Discuss the impact of using the LIFO method on a company's financial statements during periods of rising prices.
LIFO method will result in higher reported net income, higher ending inventory value, and lower taxes due to lower cost of goods sold.
LIFO method will result in lower reported net income, lower ending inventory value, and lower taxes due to higher cost of goods sold.
LIFO method will result in lower reported net income, higher ending inventory value, and higher taxes due to lower cost of goods sold.
LIFO method will result in no impact on reported net income, ending inventory value, and taxes.
7.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Explain the concept of market value in the context of the Lower of cost or market (LCM) method.
Original purchase cost of inventory
Current replacement cost of inventory
Historical cost of inventory
Selling price of inventory
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