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Exam 6: Inventories

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Question 61

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FIFO reports higher gross profit and net income than the LIFO method when

A) prices are increasing
B) prices are decreasing
C) prices remain stable
D) prices are reduced by 50%

E) None of the above
F) C) and D)

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Question 62

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Match each description to the appropriate cost flow assumption a-c) . -Does not follow the physical flow of goods in most cases

A) FIFO
B) LIFO
C) Weighted average

D) B) and C)
E) A) and B)

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Question 63

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Match each description to the appropriate cost flow assumption a-c) . -Produces the highest ending inventory when costs are increasing

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

"Market" as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by the company.

The primary objectives of control over inventory are

Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

Match each description to the appropriate inventory system a or b) . -Average cost is rarely used with this system.

During times of rising prices, which of the following is not an accurate statement?

Use the information below to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. $\begin{array} { | l | l | l | l | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline { \text { May } 3 } & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & \$ 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & \\\hline 30 & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ -Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method.

The units of Manganese Plus available for sale during the year were as follows: ​There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is used. Determine the inventory cost by a) FIFO, b) LIFO, and c) average cost methods.

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: $\begin{array} { r l l } \text { Sep. } 1 & \text { Inventory } & 20 \text { units at } \$ 20 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 25 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 30\end{array}$ -If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is

Match each description to the appropriate cost flow assumption a-d) . -The cost of the units sold and in ending inventory is a weighted average of the purchase costs.

Match each situation to its impact a-c) on the current year's net income. -Beginning inventory was understated.

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?

The inventory costing method that reports the most current prices in ending inventory is

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Match each situation to its impact a-c) on the current year's net income. -Purchased merchandise was shipped FOB shipping point on the last day of the year. The cost of the merchandise was not included in ending inventory.

Beginning inventory, purchases, and sales data for tennis rackets are as follows: $\begin{array} { | l | l | l | l | l | l | l | } \hline & \text { April 3 } & \text { Inventory } & & 12 \text { units } & @ & \$ 45 \\\hline & 11 & \text { Purchase } & & 13 \text { units } & @ & \$ 47 \\\hline & 14 & \text { Sale } & & 18 \text { units } & & \\\hline & 21 & \text { Purchase } & & 9 \text { units } & @ & \$ 60 \\\hline & 25 & \text { Sale } & & 10 \text { units } & & \\\hline\end{array}$ Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of merchandise sold and ending inventory using FIFO.

The choice of an inventory costing method has no significant impact on the financial statements.