Louisiana State University, Shreveport

ACCT 701

CHAPTER 8

1)(T / F) If ending inventory is understated, cost of goods sold is understated, resulting in an overstatement of gross margin, net income, and retained earnings.

2.  (T / F) When ending inventory is misstated in the current year, companies carry that misstatement forward into the next year.
3.  (T / F) Specific identification attaches actual cost of each unit of product to units in ending inventory and cost of goods sold.
4.  (T / F) FIFO assumes that the costs of the first goods purchased are those charged to cost of goods sold when goods are sold. During periods of rising prices, FIFO creates higher net income since the costs charged to cost of goods sold are lower.
5.  (T / F) LIFO (last-in, first-out): Ending inventory consists of the oldest costs.
6. (T / F) Perpetual inventory procedure requires an entry to Merchandise Inventory whenever goods are purchased, returned, sold, or otherwise adjusted, so that inventory records reflect actual units on hand at all times. Thus, an entry is required to record cost of goods sold for each sale.
7.  (T / F) Inventory turnover ratio = (Cost of goods sold) / (Average inventory )
8. (T / F) Inventory turnover measures the efficiency of the firm in managing and selling inventory. It gauges the liquidity of the firm's inventory.