The gross profit technique implies that A. The value of the inventory has not grown from prior years. B. The gross profit remains at the same level as in previous years. C. The correlation between sales and gross profit is consistent over time. D. Compared to prior years, neither sales nor cost of items sold have changed.

The gross profit technique implies that A. The value of the inventory has not grown from prior years. B. The gross profit remains at the same level as in previous years. C. The correlation between sales and gross profit is consistent over time. D. Compared to prior years, neither sales nor cost of items sold have changed.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If beginning inventory is understated by $11800, the effect of this error in the current period is Cost of Goods Sold Net Income Net Income overstated understated understated overstated understated understated overstated overstated
- List and explain the substantive tests of Inventory and give example.
Which of the following statements Is/are true? Multiple Cholce In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method. All of the other answer choices are true. In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO. In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.
An increasing inventory turnover ratioa. Indicates a longer time span between the ordering andreceiving of inventory.b. Indicates a shorter time span between the ordering andreceiving of inventory.c. Indicates a shorter time span between the purchase andsale of inventory.d. Indicates a longer time span between the purchase andsale of inventory.
Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.
The gross profit margin is unchanged, but the net profit margin declined over the same period. What could be the reason for this change? Cost of goods sold has increased Revenue has increased relative to expenses The tax rate on income has increased Dividends were decreased
Which one of the following statements is true? a. Income manipulation is difficult under LIFO.b. Accounting principles do not require that the inventory cost flow approximate the physical flow of goods.c. Companies may use LIFO for tax purposes and FIFO in the financial statements.d. In periods of declining prices, LIFO will result in the payment of less income taxes.
Which of the following statements about the use of the FIFO assumption is NOT true? a.The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account. b.The FIFO assumption is not affected by the inventory control method. c.In periods of rising prices it produces a higher profit than LIFO. d.The FIFO assumption produces inventory asset values that are based on older purchase costs.