Intermediate Accounting - Ch 8

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2016, Pernell's ending inventory would have been

$150,000 higher if it had used FIFO.

Gerhard Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased at least 1,200 units, COGS would have been

$2,000 higher.

Rudy Company reports gross sales revenue of $5.2 million, net sales revenue of $5 million, and cost of goods sold of $3 million. Its inventory balance was $250,000 at the beginning of the accounting period and $300,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

$3 million/($250,000+$300,000/2)=10.9 rounded to 11

Parker Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Its inventory balance was $150,000 at the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

$3.5 million/($150,000+$200,000/2) = 20

Smith Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $690,000. Its inventory as of December 31, 2016, was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2016?

$758,100/1.05 = $722,000 giving 2 layers of $690,000 and $32,000. $690,000 x 1.0 = $690,000 $32,000 x 1.05 = $33,600 $690,000 + $33,600 = $723,600

Western Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016, was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$815,400/1.08 = $755,000 giving 2 layers of $715,000 and $40,000. $715,000 x 1.0 = $715,000 $40,000 x 1.08 = $43,200 $715,000 + $43,200 = $758,200

Esquire Inc. uses the LIFO method to report its inventory. Inventory at January 1, 2021, was $825,000 (33,000 units at $25 each). During 2021, 106,000 units were purchased, all at the same price of $28 per unit. 113,000 units were sold during 2021. Assuming an income tax rate of 25%, what is LIFO liquidation profit or loss that the company would report in a disclosure note accompanying its financial statements?

113000 - 106000 = 7000 liquidated from beginning inventories. 7000 x $3 ($28-$25) = $21000. 21000 x (1 - .025) = $15750

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer? Multiple choice question. 1

2

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased 1,200 units, pretax income would have been

Currently cost of goods sold ($22,000) is computed using the 1,000 units at $20 plus 200 units at $10 ((1,000 x $20) + (200 x $10))so the units from beginning inventory are liquidated. If they had purchased at least 1,200 units, cost of goods sold would have been $24,000 (1,200 x $20); $2,000 higher; resulting in lower pretax income of $2,000.

The LIFO reserve shows how ending inventory would have differed if the company had utilized _______ or ______, instead of LIFO. (Select all that apply.)

FIFO weighted-average

Chase Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Rounding to the nearest percent, the company's gross profit ratio would be

Gross profit ratio is computed as gross profit/NET SALES. Be sure to use the net sales number, not gross sales. ($7 million -$3.5 million)/$7 million = 50%.

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

In a period of rising prices, FIFO results in goods with the lowest cost being sold first resulting in the lowest cost of goods sold

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

In a period of rising prices, LIFO results in goods with the highest cost being sold first resulting in higher cost of goods sold and lower income.

Which of the following is a correct interpretation of the information provided by the gross profit margin?

It indicates the percentage of each sales dollar available to cover other expenses.

If a company uses _____ to measure taxable income, they must use the same method for external financial reporting.

LIFO

When prices increase, the ______ inventory method provides the best matching of revenue and expenses.

LIFO

What of the following could motivate a company that uses LIFO for external reporting to use another method for internal recordkeeping? (Select all that apply.)

The high recordkeeping cost of LIFO. Contractual agreements such as bonus contracts.

True or false: Dollar-value LIFO allows a company to combine a large variety of goods into one pool.

True DVL extends the concept of inventory pools and allows various goods to be combined into one pool.

A just-in-time (JIT) inventory system (Select all that apply.)

assists managers with inventory management. allows companies to maintain relatively low inventory balances.

The inventory turnover ratio is computed as cost of goods sold divided by _____.

average inventory

In a LIFO inventory system, inventory amounts shown in the balance sheet may be distorted because they may represent

costs incurred several years earlier.

When inventory quantities _____ during a period, out-of-date inventory layers are liquidated and cost of goods sold will match noncurrent costs with current selling prices in a LIFO inventory costing system.

decline

A LIFO liquidation occurs when inventory quantities ______.

decrease

The _____ ratio indicates the percentage of each sales dollar available to cover expenses other than cost of goods sold and then to provide a profit.

gross profit

The inventory turnover ratio shows

how many times the average inventory balance is sold during the current reporting period.

The Playa Company has the following information in its records. Certain data have been intentionally omitted ($ in thousands).

https://study.com/academy/answer/the-playa-company-uses-a-periodic-inventory-system-the-following-information-is-taken-from-playa-s-records-certain-data-have-been-intentionally-omitted-in-thousands-2011-2012-2013-beginning-inventory-225-000-cost-of-goods-sold-627-000-621-000.html

Steiner Company's average days in inventory has decreased during 2016 as compared to the prior year. From this information, we can conclude that Steiner (Select all that apply.)

is selling its inventory faster. has a higher inventory turnover ratio.

When prices increase, the ______ inventory method tends to decrease a company's tax liability during a particular fiscal period relative to other inventory methods. (Enter one word per blank)

last-in, first-out

The layer year cost index is calculated by dividing the cost in ______ year by the cost in ______ year.

layer; base

A JIT inventory system allows companies to maintain ______ inventory levels.

smaller