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Inventory

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Name: _________________ Chapter 7 Graded Homework Note: As a reminder, for questions requiring calculations to solve (ex. Problem IV), partial credit is granted if calculations are clearly shown. Problem I: (12 pts) Indicate whether each of the following statements is true (T) or false (F). a. __T__ “Net purchases” is calculated by taking the cost of new inventory purchases plus freightin minus purchase discounts minus purchase returns and allowances. b. __T__ The main benefit of the LIFO inventory method is tax savings. c. __F__ All else being equal, as a company’s cost of goods sold increases, net income increases. d. __F__ Concerning shipping terms, freight-in costs are typically treated as operating expenses whereas freight-out costs are typically included in the cost of goods sold. e. __T__ The cost of beginning inventory plus the cost of net purchases for the period is equal to an amount described as cost of inventory available for sale or goods available for sale. f. __F__ Both purchase returns and sales returns reduce the cost of inventory. g. __T__ Unlike GAAP, International Financial Reporting Standards (IFRS) do not permit the use of LIFO for financial reporting purposes. h. __F__ GAAP requires companies to choose an inventory costing method for financial reporting purposes that most closely resembles the manner in which their actual inventory costs flow. i. __T__ GAAP allows companies to switch inventory methods back and forth (ex. FIFO to L ...
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