Exam 8: Valuation of Inventories: a Cost-Basis Approach

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used.This account should be reported

The following information is available for Kerr Company for 2007: Freight-in \ 30,000 Purchase returns 75,000 Selling expenses 150,000 Ending inventory 260,000 The cost of goods sold is equal to 400% of selling expenses.What is the cost of goods available for sale?

When the double extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number.How would the following be used in the calculation of this index number? Ending inventory at current year cost Ending inventory at base year cost a. Numerator Denominator b. Numerator Not used c. Denominator Numerator d. Not used Denominator

If a supplier ships goods f.o.b.destination, title passes to the buyer when the supplier delivers the goods to the common carrier.

Johnson Company had 400 units of "Tank" in its inventory at a cost of $4 each.It purchased 600 more units of "Tank" at a cost of $6 each.Johnson then sold 700 units at a selling price of $10 each.The LIFO liquidation overstated normal gross profit by

JSmith Manufacturing Company has the following account balances at year end: Office supplies 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 92,000 Prepaid insurance 6,000 What amount should JSmith report as inventories in its balance sheet?

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

A disadvantage of LIFO is that it does not match more recent costs against current revenues as well as FIFO.

The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

Which of the following is true regarding the use of LIFO for inventory valuation?

Quayle Corporation's inventory cost on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out.Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Baker Company has been using the LIFO method of inventory valuation for 10 years, since it began operations.Its 2007 ending inventory was $40,000, but it would have been $60,000 if FIFO had been used.Thus, if FIFO had been used, Baker's income before income taxes would have been

Briggs Corporation uses the perpetual inventory method.On March 1, it purchased $10,000 of inventory, terms 2/10, n/30.On March 3, Briggs returned goods that cost $1,000.On March 9, Briggs paid the supplier.On March 9, Briggs should credit

If both purchases and ending inventory are overstated by the same amount, net income is not affected.

Use the following information for questions Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2005.Its inventory at that date was $220,000 and the relevant price index was 100.Information regarding inventory for subsequent years is as follows: Inventory at Current Date Current Prices Price Index December 31, 2006 \ 256,800 107 December 31, 2007 290,000 125 December 31,2008 325,000 130 -What is the cost of the ending inventory at December 31, 2008 under dollar-value LIFO?

Which of the following statements is not valid as it applies to inventory costing methods?

Use the following information for questions Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: 2007 2006 Ending inventory \ 3,000 overstated \ 8,000 overstated Depreciation expense \ 2,000 understated \ 6,000 overstated -Assume that no correcting entries were made at December 31, 2006, or December 31, 2007 and that no additional errors occurred in 2008.Ignoring income taxes, by how much will working capital at December 31, 2008 be overstated or understated?

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods? FIFO LIFO a. Yes No b. Yes Yes c. No Yes d. No No

Use the following information for questions Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: 2007 2006 Ending inventory \ 3,000 overstated \ 8,000 overstated Depreciation expense \ 2,000 understated \ 6,000 overstated -Assume that no correcting entries were made at December 31, 2006.Ignoring income taxes, by how much will retained earnings at December 31, 2007 be overstated or understated?

Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as production increases.