Inflation

Question 1

constant dollars

Answer 1

excludes effect of inflation

Question 2

nominal dollars

Answer 2

include effect of inflation

Question 3

Cost of goods sold on a current cost basis is calculated b/y

Answer 3

multiplying the number of units sold by the average current cost of units during the year.

Question 4

Monetary assets and liabilities

Answer 4

are financial instruments that are fixed in amount and do not vary in dollar amount as a result of inflation.

Question 5

historical cost/nominal dollar approach

Answer 5

items are recorded at their original amounts and are not adjusted for price level changes

Question 6

current cost/nominal dollar approach

Answer 6

items are adjusted to their current amounts, but are not adjusted for changes in the general price level

Question 7

Under the historical cost/constant dollar approach

Answer 7

items are recorded at their original cost but are adjusted for changes in the general price level

Question 8

under the current cost/constant dollar approach

Answer 8

items adjusted to their current amounts and adjusted for changes in the general price level.

Question 9

current cost accounting

Answer 9

An adjustment to depreciation expense and to cost of goods sold due to changes in price indexes would be appropriate when applying current cost accounting.

Question 10

Under current cost accounting, the holding gain or loss on inventory is

Answer 10

the difference between its replacement cost and its purchase price. If the replacement cost is higher than the purchase price, then the goods have increased in value and a holding gain has occurred.