CB Inventory and Fixed Assets Flashcards

Under the FIFO inventory method, the first units purchased are assumed to be:

Answer: The first units sold

FIFO (First-In, First-Out) assumes the oldest inventory items are sold first, leaving more recent purchases in ending inventory.

During a period of rising prices, LIFO results in a higher cost of goods sold compared to FIFO because:

Answer: It assigns the most recent, higher costs to inventory sold

LIFO (Last-In, First-Out) assigns the latest—and in inflationary times, highest—costs to cost of goods sold, reducing taxable income.

A physical inventory count revealed 50 fewer units than the perpetual inventory records showed. The bookkeeper should:

Answer: Debit Inventory Over and Short and credit Inventory

An inventory shortage is recorded by crediting Inventory (reducing it) and debiting an Inventory Over and Short account to track the discrepancy.

Goods held on consignment by a retailer are included in whose inventory?

Answer: The consignor's (owner's) inventory

Title to consigned goods remains with the consignor until sold, so consigned goods must be included in the consignor's inventory, not the retailer's.

Which inventory valuation method results in an ending inventory value closest to current replacement cost?

Answer: FIFO

FIFO leaves the most recently purchased units in ending inventory, so the balance sheet value reflects prices closest to current market cost.

The lower-of-cost-or-net-realizable-value (LCNRV) rule requires writing inventory down when:

Answer: Net realizable value falls below cost

LCNRV conservatism requires recognizing a loss when inventory's expected selling price (less disposal costs) drops below its recorded cost.