Accounting Principles Fundamental Prep Questions With Verified Answers

Accounting Principles Fundamental Prep Questions With Verified Answers Sometimes companies must estimate ending inventory. Review the reasons given below for estimating inventory and choose all of the correct responses. - ANSWER -The store was flooded. -Fire destroyed the inventory warehouse. -Interim financial statements need to be prepared. Which of the statements below explain why LCM is used? - ANSWER -LCM allows companies to recognize a loss in value of an asset in the period the loss occurs. -Accounting principles require conservatism when reporting financial information. -Companies never want to report inventory on a balance sheet that is higher than replacement cost. -Assets are not shown at an inflated value on the balance sheet, but rather at lower of cost or replacement cost. Which of the following statements is correct regarding goods in transit? - ANSWER Goods shipped FOB shipping point will be included in the buyer's inventory. Identify the safeguards that companies implement to protect their inventory. - ANSWER Restrict access to inventory.Match inventory received with purchase orders.Implement security measures, such as cameras.Control access to inventory records. The FIFO cost flow assumption assumes that the cost of items purchased __________ are the costs that will be transferred first to cost of goods sold on the __________. - ANSWER -Earliest -Income Statement An advantage of the LIFO method is that it best matches - ANSWER current costs with revenues Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory. - ANSWER -Cost flow is an assumption about which goods/items are sold. -Physical flow is focused on the actual movement of goods. -A business may adopt any cost flow assumption when accounting for perishable items. -Perishable items must have an actual physical flow of FIFO. Why would the physical count of inventory be different than what is shown in perpetual inventory records? - ANSWER -Events such as errors -Events such as theft -Events such as loss -Events such as damage The kind of business that would use the specific identification method of inventory costing includes: - ANSWER A car dealership The _____ principle states that inventory costs are expensed as cost of goods sold when inventory is sold. - ANSWER expense recognition Which statement(s) below correctly describe(s) the relationship of cost of goods sold and ending inventory? - ANSWER -Cost of goods available for sale must be allocated between cost of goods sold and ending inventory. -Cost of goods sold plus ending inventory will equal the total goods available for sale. Show your understanding of the ownership of goods in transit by completing the following statement.