Intermediate Accounting Chapter 8: Inventories Measurement, Spiceland 9e

LIFO

A company that prepares its financial statements according to International Financial Reporting Standards (IFRS) can use each of the following inventory valuation methods except

$5,880

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at

53.4%

Anthony Thomas Candies (ATC) reported the following financial data for 2018 and 2017: 2018 2017 Sales $305,000 $284,000 Sales returns and allowances 9,000 6,000 Net sales $ 296,000 $278,000 Cost of goods sold: Inventory, January 1 43,000 36,000 Net purchases 152,000 146,000 Goods available for sale 195,000 182,000 Inventory, December 31 57,000 43,000 Cost of goods sold 138,000 139,000 Gross profit $158,000 $139,000 ATC's gross profit ratio (rounded) in 2018 is:

$318,000

Cinnamon Buns Co. (CBC) started 2018 with $52,000 of merchandise on hand. During 2018, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system. Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the merchandise on hand at the beginning of 2018 was determined by a physical count that failed to realize that $10,000 of merchandise was being held on consignment for Frosting R Us Inc. What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts?

More costly to implement

Compared to dollar-value LIFO, unit LIFO is

Net Purchases + beginning inventory − ending inventory

Cost of goods sold is given by

Lower under average cost than LIFO

During periods when costs are rising and inventory quantities are stable, cost of goods sold will be

Higher under FIFO than LIFO

During periods when costs are rising and inventory quantities are stable, ending inventory will be

Items in transit sold f.o.b. destination

Ending inventory is equal to the cost of items on hand plus

True

FIFO periodic and FIFO perpetual always produce the same dollar amounts for cost of goods sold.

FIFO

In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is

Purchases

In a periodic inventory system, the cost of purchases is debited to

A new weighted-average unit cost is calculated each time additional units are purchased

In a perpetual average cost system

Inventory

In a perpetual inventory system, the cost of purchases is debited to

True

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.

The cost of office equipment

Inventory does not include

$5,087

Inventory records for Herb's Chemicals revealed the following: March 1, 2018, inventory: 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600gals @ $7.25 Mar. 5 400gals Mar. 16 800gals @ $7.30 Mar. 14 700gals Mar. 23 600gals @ $7.35 Mar. 20 500gals Mar. 26 700gals The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

$5,140

Inventory records for Herb's Chemicals revealed the following: March 1, 2018, inventory: 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600gals @ $7.25 Mar. 5 400gals Mar. 16 800gals @ $7.30 Mar. 14 700gals Mar. 23 600gals @ $7.35 Mar. 20 500galsMar. 26700gals The ending inventory assuming FIFO is

True

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.

$492,550

Northwest Fur Co. started 2018 with $94,000 of merchandise inventory on hand. During 2018, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system. Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

$264

Nueva Company reported the following pretax data for its first year of operations. Net sales 7,340 Cost of goods available for sale 5,790 Operating expenses 1,728 Effective tax rate 40% Ending inventories: If LIFO is elected 618 If FIFO is elected 798 What is Nueva's net income if it elects LIFO?

Cost of goods sold is not recorded under a periodic system until the end of the period

One difference between periodic and perpetual inventory systems is

Plus freight-in, less purchase discounts

Purchases equal the invoice amount

$160,250

The Constance Corporation's inventory at December 31, 2018, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following: Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2019, was received by Constance on January 5, 2019. Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2018, arrived at the customer's location on January 6, 2019. Merchandise costing $21,000 was being held on hand for Jess Company on consignment. Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%. What amount should Constance Corporation report as inventory in its December 31, 2018, balance sheet?

Tax purposes, it must be used for financial reporting

The LIFO Conformity Rule states that if LIFO is used for:

False

The gross profit ratio is calculated by dividing gross profit by average inventory

FIFO

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be

Cost of goods sold

The largest expense on a retailer's income statement is typically

Saves income taxes currently

The primary reason for the popularity of LIFO is that it

Significant cash flow advantages over FIFO

The use of LIFO during a long inflationary period can result in

Usually provides a better match of expenses with revenues

The use of LIFO in accounting for a firm's inventory

Deducted from purchases

Under the gross method, purchase discounts taken are

Included in interest expense

Under the net method, purchase discounts lost are

Included in purchases

Using the gross method, purchase discounts lost are

A LIFO inventory pool is inventory items grouped together based on physical similarities. Ending inventory is calculated by relating subsequent years to the base year price index. Ending inventory is the sum of beginning inventory plus a single layer added during the period

What is a LIFO inventory pool? How is the cost of ending inventory determined when inventory pools are used?

All of the other answer choices are true

Which of the following is false regarding the FIFO inventory method