CHAPTER 8 HW

If costs are rising, which inventory method will result in the highest cost of goods sold?

LIFO

INVENTORY COST FLOW ASSUMPTIONS

MANY US MULINATIONAL COMPANIES USE LIFO FOR THEIR DOMESTIC INVENTORIES

PLATTER INC PURHCHASES GOODS FROM A SUPLIER AND LATER RETURNS THOSE GOODS. PLATTER USES A PERPETUAL SYSTEM. WHERE WILL PLATTER INC RECORD THE RETURN?

PLATTER WILL RECORD THE RETURN BY REDUCING ITS INVENTORY ACCOUNT.

ABBOTT COMPANY USES A PERPETUAL INVENTORY SYSTEM. WHEN DOES ABBOTT RECORD TRANSACTIONS RELATING TO ITS INVENTORY?

SALES REVENUE AND COGS ARE BOTH RECORDED AT THE TIME OF THE SALE.

ENDING INVENTORY AND COST OF GOODS SOLD ALWAYS EQUAL

THE COST OF GOODS AVAILABLE FOR SALE (BEG. INVENTORY + NET PURCHASES)

LIFO LIQUIDATIONS IN PERIODS IN WHICH COSTS ARE RISING

THEY DISTORT THE INCOME STATEMENT

WHICH OF THE FOLLOWING STATEMENTS ABOUT THE TYPES OF INVENTORY IS (ARE) CORRECT?

1 - WHEN THE MANUFACTURING PROCESS IS COMPLETE, THE COST OF THE RELATED INVENTORY ITEMS IS TRANSFERRED INTO FINISHED GOODS. 2 - INVENTORY IS CLASSIFIED AS AN ASSET IN THE BALANCE SHEET UNTIL IT IS SOLD, AT WHICH TIME THE COST IS TRANSFERRED TO COGS IN THE INCOME STATEMENT.

COST OF GOODS SOLD

BEG INV. + NET PURCHASES = GOODS AVAILABE FOR SALE LESS COGS = END INV. (FROM A PHYSICAL COUNT)

BLUESTEIN IN PURCHASES GOODS FROM ONE OF ITS SUPPLIERS AND INCURS FREIGHT CHARGES TO HAVE THE GOODS DELIVERED. THE COMPANY USES A PERPETUAL SYSTEM. IN WHAT ACCOUNT WILL IT RECORD THE CHARGES?

BLUESTEIN WILL RECORD THE FREIGHT CHARGES IN ITS INVENTORY ACCOUNT.

LIFO CONFORMITY RULE

IF A COMPANY USES LIFO TO MEASURE TAXABLE INCOME, THE COMPANY ALSO MUST USE LIFO FOR EXTERNAL FINANCIAL REPORTING.

WHAT MIGHT CAUSE A REDUCTION IN THE QUALITY OF EARNINGS?

INVENTORY WRITE-DOWN, CHANGES IN INVENTORY METHOD, AND LIFOLIQUIDATONS