TRUE or FALSE 1

1. When a seller offers a 2/10, n/30 sales discount, the buyer should take the discount only if the buyer has the cash or can borrow money at less than 2% annual interest to pay for it.

Answer: FALSE. The buyer will be recorded whether taken or not. And discount is taken when the buyer is able to pay the seller within 10 days from the date of sale.

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2. A business using the perpetual inventory system does not need to take a physical inventory count because inventory is adjusted with every purchase and sales of merchandise.

Answer: FALSE. Even if perpetual inventory system is used, physical counting is still a need to prove the existence of the inventory.

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3. If the Day's sales in inventory ratio (Ending Inventory/Cost of Good Sold) x 365) was 65 days at 12/31/2016 and 70 days at 12/31/2015, the trend is favorable.

Answer: FALSE. A lower days sales in inventory ratio is preferred as it means that the duration to sell the inventory is shorter.

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4. LIFO will result in both lower net income and higher ending inventory than FIFO.

Answer: FALSE. LIFO net income is lower and ending inventory is higher than the FIFO net income when prices is rising.