Following are a series of statements regarding topics discussed in this chapter.
Required:
Indicate whether each statement is true (T) or false (F).
(a) Companies may value inventory at current replacement cost if the historical cost of inventory is lower than current replacement cost.
(b) When goods are shipped FOB destination, the seller is responsible for paying the transportation charges.
(c) An error in a company’s ending inventory balance automatically causes the following period’s beginning inventory balance to be misstated.
(d) Under the LIFO method of inventory, the costs of the most recently acquired goods are sent to Cost of Goods Sold first, whereas the costs of the oldest goods remain in inventory.
(e) Merchandising companies want to maintain as low an inventory turnover ratio as possible.
(f) If a company uses the FIFO method of inventory costing for federal tax purposes, it must also use FIFO for financial reporting purposes.
(g) In an inflationary economic environment, the FIFO inventory costing method typically yields a higher net income than the LIFO method when these methods are applied to the same financial data.
(h) Generally accepted accounting principles require that a company select the inventory cost flow assumption that most closely matches the physical flow of its goods.
(i) Because cost of goods sold is not tracked during a period, periodic inventory systems cannot provide information to managers about theft losses during a period.
(j) As the inventory turnover gets smaller, the age of inventory gets larger.
(k) U.S. financial accounting standards allow the use of FIFO, LIFO, and average inventory costing methods, but international accounting standards only allow the use of FIFO.