Intermediate Accounting I- Chapter 8
1. Advantage to specific identification method Matches actual costs against actual
revenues
Cost flow matches the physical flow of goods.
2. Average cost method Prices items in the inventory on the basis of the average cost of all
similar goods available during the period.
3. Can a layer be rebuilt? Once a layer is removed it is gone forever.
4. Consignment goods Goods on consignment remain the property of the consigner-the one
who is consigning the goods.
5. Cost flow assumptions Companies should choose the method that most clearly reflects
periodic income. Cost flow assumption does not have to be consistent with the physical
flow of goods.
6. Cost of goods available for sale The sum of cost of goods on hand at the beginning of
the period and the cost of goods acquired during the period.
7. Cost of goods sold calculation The difference between the cost of goods available for
sale during the period and the cost of goods on hand at the end of the period.
8. Disadvantage of specific-goods LIFO approach 1-Companies must continually redefine
pools, which is time consuming and costly.
2-Results in erosion of the layers, which loses the LIFO costing benefit.
9. Disadvantage to specific identification Allows a company to manipulate net income.
10. Dollar Value LIFO method Determines and measures any increases and decreases in a
pool in terms of total dollar value, not the physical quantity of the goods in the inventory
pool.
11. FIFO-first in last out method Assumes that a company uses goods in the order in which
it purchases them. First goods purchased are the first ones used.
12. Finished goods inventory Account used to report the costs identified with the
completed but unsold units on hand at the end of the fiscal period.
13. FOB destination Title to goods passes to buyer when the goods are received from the
common carrier.
14. FOB Shipping point Title to goods passes to the buyer when goods delivered to
common carrier.
15. How are purchase discounts treated if a company uses the gross method? It reports the
purchase discounts as a deduction from purchases on the income statement.
16. How do companies determine the price indexes? Most companies use the general
price-level index that the federal gov. prepares and publishes monthly.
17. How do companies generally account for the acquisition of inventories? Cost basis
18. How does ending inventory and cost of goods sold vary when using FIFO based on
perpetual or periodic? When FIFO is used, the inventory and cost of goods sold would be
