Question

10. Which of the following statements regarding inventory is (are) true?

1. I. For a merchandising company, the cost of goods available for sale minus the cost of goods sold will equal ending inventory.
2. II. The LIFO inventory cost flow assumption is preferable to FIFO for a company wishing to maximize profits during a period of declining costs.
3. III. A company that ships finished goods FOB destination will keep the inventory in its accounting records up until the point that the goods are delivered to a common carrier acting as an agent for the buyer.

Top of Form

• II and III only.
• I and II only.      
• I and III only.
• I, II, and III.

Answer 1

The following statements are true:

I. Cost of goods available for sale - cost of goods sold = Ending inventory.

II. The LIFO inventory cost flow assumption is preferable to FIFO for a company wishing to maximize profits during a period of declining costs.

Under LIFO method units purchased later at lower costs would be assumed to be sold first, thereby reducing cost of goods sold and increasing profits.

A company that ships finished goods FOB destination will keep the inventory in its accounting records up until the point that the goods are delivered to the buyer.

I and II only is correct option