Accounting 7.4
An attribute associated with inventory valuation methods is that the lower the cost of goods sold the higher the ending inventory.
TRUE
Assuming inflation, FIFO will result in a higher net income than LIFO.
TRUE
Assuming inflation, the weighted-average method will result in a net income that is higher than LIFO.
TRUE
FIFO will report the highest cost of goods sold on the income statement when prices are falling
TRUE
If unit costs and prices did not fluctuate, specific identification, LIFO, FIFO, and weighted-average would show the same ending inventory and cost of goods sold balances.
TRUE
LIFO matches cost of goods sold to sales on the income statement more accurately than does FIFO.
TRUE
The LIFO costing method can result in misleading inventory costs on the balance sheet because the oldest costs are left in ending inventory.
TRUE
The consistency convention requires a company to use LIFO from year to year.
TRUE
There is no difference in the value of ending inventory if a company uses perpetual FIFO as opposed to periodic FIFO.
TRUE
U.S. tax law contains a conformity requirement that allows companies to use LIFO for tax purposes only if the companies use LIFO for financial reporting purposes.
TRUE
When prices are rising, LIFO generally results in the lowest taxable income, and therefore helps reduce taxes paid.
TRUE
IFRS prohibits the use of the ________ method of inventory valuation.
E) LIFO
LIFO results in a more accurate valuation of ending inventory on the balance sheet than does FIFO.
FALSE
The specific identification method is frequently used for items with common characteristics, such as tons of coal.
FALSE
Under the FIFO method, ending inventory is valued based on the oldest unit costs.
FALSE
Biscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the ending inventory at August 31, 20X3, for Biscuit Bakery if the company uses periodic weighted average as its inventory valuation method (round all calculations to the nearest penny)?
A) $281.70
Assuming inflation, if a company wanted to maximize net income, it would select which of the following inventory valuation methods?
A) FIFO
When inventory prices are rising, the ending inventory balance reported on a LIFO basis is generally
A) lower than on a FIFO basis
Using the LIFO method, the earliest purchases of inventory are assumed to be contained
A) on the balance sheet as part of ending inventory.
Biscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the ending inventory balance at August 31, 20X3, for Biscuit Bakery if the company uses periodic LIFO as its inventory valuation method?
B) $270
FIFO tends to decrease taxes when
B) costs are decreasing.
Using the FIFO method, the earliest purchases of inventory are assumed to be contained
B) on the income statement as part of cost of goods sold.
Biscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the ending inventory balance at August 31, 20X3, for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method?
C) $288
Biscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the ending inventory balance at August 31, 20X3, for Biscuit Bakery if the company uses perpetual FIFO as its inventory valuation method?
C) $294.00
Biscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the cost of goods sold for the month ended August 31, 20X3, for Biscuit Bakery if the company uses periodic FIFO as its inventory valuation method?
C) $488.00
iscuit Bakery had the following activity in its inventory account during August 20X3. Cost per Date Activity Units Unit Cost Total August 1 Beginning inventory 100 $3.00 $300 August 3 Purchase 40 3.10 124 August 7 Sale 50 August 12 Purchase 50 3.20 160 August 16 Sale 70 August 23 Sale 40 August 30 Purchase 60 3.30 198 What is the cost of goods sold for the month ended August 31, 20X3, for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method?
C) $494
Assuming inflation, which of the following relationships among inventory valuation methods is incorrectly stated?
C) LIFO has a higher ending inventory balance and a higher net income than weighted-average.
Assuming inflation, which of the following statements incorrectly describes an attribute of, or the relationship among, inventory valuation methods?
C) LIFO tends to provide ending inventory valuations that closely approximate the actual market value of the inventory at the balance sheet date.
LIFO tends to decrease taxes when
C) costs are increasing.
When inventory prices are rising, all of the following are reasons for choosing the LIFO method versus the FIFO method except:
D) LIFO reports the most up-to-date inventory values on the balance sheet.
Which of the following inventory methods physically links the particular items sold with the actual cost of goods sold for the items sold?
D) Specific identification
When inventory prices are rising, the FIFO method will generally yield a gross profit that is
D) higher than the LIFO method.
Which of the following statements best describes how management selects an inventory valuation method?
E) A company may choose any inventory valuation method even if it is contradictory to the physical flow of inventory.