How is inventory shrinkage reported in the financial statements? Increase in expenses Decrease in liabilities Increase in liabilities Increase in assets With a FIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory? Old units sold, old units in ending inventory New units sold, old units in ending inventory Old units sold, new units in ending inventory New units sold, new units in ending inventory With a LIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory? Old units sold, new units in ending inventory New units sold, new units in ending inventory Old units sold, old units in ending inventory New units sold, old units in ending inventory
The correct answer and explanation is:
1. How is inventory shrinkage reported in the financial statements?
Correct Answer: Increase in expenses
Explanation:
Inventory shrinkage, which refers to the loss of inventory due to theft, damage, or errors, is recorded as an expense in the financial statements. It increases the cost of goods sold (COGS) or is reported as a separate inventory shrinkage expense, reducing net income.
2. With a FIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory?
Correct Answer: Old units sold, new units in ending inventory
Explanation:
Under the First-In, First-Out (FIFO) assumption, the oldest inventory (first purchased) is assumed to be sold first. The ending inventory, therefore, consists of the most recently purchased (newer) units.
3. With a LIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory?
Correct Answer: New units sold, old units in ending inventory
Explanation:
Under the Last-In, First-Out (LIFO) assumption, the newest inventory (last purchased) is assumed to be sold first. The ending inventory, therefore, consists of the older inventory that was purchased earlier.
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