1. What does the gross profit ratio and the inventory turnover ratio tell company management about inventory?
2. How does an understatement of ending inventory affect the financial statements of two periods? How does an overstatement of ending inventory affect the financial statements of two periods?
3. What accounts are used to record inventory purchase transactions under the periodic inventory system? Why aren't these accounts used in a perpetual inventory system?
4. ‘‘For each inventory costing method, perpetual and periodic systems yield the same amounts for ending inventory and cost of goods sold.'' Do you agree or disagree with this statement? Explain.