The Perpetual Method of Accounting for Inventory

question 94

Multiple Choice

The perpetual method of accounting for inventory

• A) Requires that a physical count of inventory be taken before the cost of goods sold can be determined with any reasonable degree of accuracy
• B) Is likely to be less expensive to maintain than a periodic inventory method
• C) Is not as helpful as a periodic method in providing management with timely reports about inventory quantities and costs
• D) Allows management to better estimate inventory losses from pilferage than does a periodic inventory method

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Definitions:

Discount On Bonds Payable

The difference by which a bond's selling price is less than its face value, which effectively increases the interest yield for investors.

Additional Paid-In Capital

An amount paid by investors for shares that exceeds the par value of the shares; it reflects the excess amount investors are willing to pay above the nominal value.

Market Value Method

An accounting method that assesses assets and liabilities based on their current market prices rather than historical cost.

Book Value

The net value of a company's assets as found on its balance sheet, calculated by subtracting total liabilities from total assets.