7. If the amount assigned to ending inventory is incorrect,

a. The balance sheet is affected, but the income statement is not.

b. The income statement is affected, but the balance sheet is not.

c. The balance sheet is affected, but cost of goods sold is not.

d. Both the balance sheet and the income statement are affected.

8. Which one of the following statements regarding changing inventory methods is true?

a. A change in inventory methods can be justified if the change is made to better match profits with revenue.

b. Changing inventory methods affects consistency.

c. One place that the reader of an annual report would be able to identify that a company changed inventory

methods is the statement of stockholders' equity.

d. Tax advantages are valid justification for changing inventory methods.

Enter the appropriate word(s) to complete the statement.

9. When a company using LIFO experiences a partial or complete liquidation of its older, lower-priced inventory, its

gross margin will be ____________________ (higher, lower, or unchanged) for the period.

10. The ____________________ method results in the best approximation of replacement cost of goods sold on the

income statement during periods of rising prices.

11. Shipping terms of ___________________________________ mean that the buyer pays shipping costs.

12. A _________________________ is an amount deducted by customers for payment within the discount period.

13. Under the ____________________ method, an increase in inventory is shown as an adjustment to net income in

the operating activities category of the cash flow statement.

14. The inventory of a(n) ____________________ consists of three distinct types of costs: direct materials, direct labor,

and manufacturing overhead.