AC 211 Chapter 7

When prices (costs of inventory from suppliers) remain the same over the period, which cost flow assumption would generally measure the largest current ratio?

All of the above assumptions (LIFO, FIFO and averaging) would result in equal current ratios during an extended period of constant prices.

During an extended period of constant prices, a company adopts LIFO instead of FIFO.

Assets and net income are not affected

During a period of increasing inventory and increasing prices, a company uses the LIFO method, which creates the largest cost of goods sold.

Assets and net income decrease

During a period of increasing inventory and rising prices, a company decides to use FIFO instead of LIFO.

Assets and net income increase

What company would likely carry the largest percentage of inventory as compared to its other assets?

Automotive dealership

Cost of goods available for sale can be computed under a periodic inventory system as

Beginning inventory plus net purchases

During a year of rising prices and increasing inventory, which cost flow assumption would yield the highest current ratio?

FIFO

What inventory cost flow assumption is not allowed under IFRS?

LIFO

What is true when using a periodic inventory system?

first costs will be assigned to units at the end of the period that have not yet been sold; second cost of goods sold is calculated

Selecting an inventory cost flow assumption will most likely be influenced by?

income taxes

If you are examining the balance sheet of a retailer, you are likely to find

merchandise inventory

If a company uses the LIFO cost flow assumption on its federal income tax return in order to minimize its tax payment, then it

must use LIFO on its financial statements.

Under a periodic system, cost of goods sold can be computed as:

Cost of goods available for sale minus ending inventory

During a period of rising prices and inventories, a company whose current ratio is dangerously close to the minimum specified by agreement with a major creditor would prefer which cost flow assumption?

FIFO

During a year of increasing prices and increasing inventory, which cost flow assumption would report the greatest net income?

FIFO

Which of the following results in a higher current ratio and higher working capital (assuming increasing inventory costs and quantities)? (Tip: think of effect of inventory costing on current assets) FIFO or LIFO

FIFO

One of the reasons that LIFO may disappear as an inventory costing method in the U.S. is

International Financial Reporting Standards do not permit LIFO.

During a period of rising prices and increasing inventory, which cost flow assumption used on both federal income tax returns and financial reports would provide a company with the greatest cash position?

LIFO

During a year of rising inventory costs (higher prices from suppliers) and increasing levels inventory, which cost flow assumption would measure the lowest net income?

LIFO

During a year of rising prices and increasing inventory, which cost flow assumption would measure the lowest working capital?

LIFO

The President and CEO of Quinn Manufacturing receives a cash bonus equal to 1% of audited net income during the current year. During a period of rising prices and increasing inventory, which inventory cost flow assumption would measure the lowest compensation expense and greatest cash position for Quinn Manufacturing?

LIFO

Which inventory costing method assumes that the most recent purchases are the first goods sold when assigning costs to cost of goods sold?

LIFO

If having more cash to run and grow your business is more important than reported earnings, a firm is likely to elect to use

LIFO if inventory prices from suppliers have been rising.

Explain how a firm can present higher current assets through higher costs assigned to ending inventor:

Use FIFO if it has increasing inventory levels and increasing inventory costs.

What enables a firm to report the lowest taxable income?

Using LIFO if inventory prices from suppliers have been rising.

Inventory that is available at 12/31/2014 but not yet sold is reported as

a current asset if it's expected to be sold within the next year

The central cost outflow of inventory during the period is reported on the income statement as

cost of goods sold

Grocery stores that try to sell the oldest items first are required to use FIFO for financial reporting. true or false?

false

If a company desires to increase its inventory, then it should:

purchase more goods than it sells during the period.

During a period of changing inventory acquisition prices from suppliers, which of the following is NOT immediately sensitive to the particular cost flow assumption adopted?

quick ratio

In contrast to a perpetual inventory system, a periodic system

records cost of goods sold at a different time

In computing the cost of goods sold (for the income statement), which of the following methods expenses the ACTUAL cost of the unique inventory items that were sold during the period. In other words, which of the four methods is NOT based on a cost flow ASSUMPTION?

specific identification

In contrast to a periodic inventory system, a perpetual system

updates cost of goods sold and inventory accounts with each purchase and each sale.

LIFO Conformity rule requires companies that

use LIFO for tax reporting to use LIFO for financial reporting

Which inventory costing method applies the same cost PER UNIT in assigning cost to both ending inventory and cost of goods sold?

weighted average