FIFO/LIFO Quiz

A periodic inventory system involves employees counting or weighing inventory items.

• True

• False

In a period of rising prices, the LIFO costing method will yield the highest amount of net income.

• True

• False

In a period of rising prices, the FIFO costing method will have the highest value of ending inventory.

• True

• False

Businesses have the choice on which costing method they use, but they must stay consistent in their costing methods throughout the fiscal period.

• True

• False

In a period of rising prices, the Weighted Average method will have the lowest value of ending inventory.

• True

• False

Businesses use the gross profit method for estimating inventory because its cost efficient and it provides quality information to potential investors.

• True

• False

A perpetual inventory system provides day-to-day information about the quality of merchandise on hand.

• True

• False

LIFO yields a high amount for cost of merchandise sold, which means that net income will be highest using LIFO compared to the other two methods.

• True

• False

Ending inventory ultimately determines what you can charge for each unit at year end.

• True

• False

The cost of merchandise sold can be calculated by subtracting the cost of merchandise available for sale from the cost of ending inventory.

• True

• False