Exam 7: Inventories: Cost Measurement and Flow Assumptions

A company's liquidation of inventory under LIFO results in higher income during periods of rising costs. Therefore, management can manipulate earnings by delaying purchases until after the end of the fiscal year.

In a period of rising prices LIFO produces the highest cost of goods sold and the lowest gross profit.

Rubric, Inc. provided the following inventory transaction summary for May: 5/1 Purchased 200 units @ $3.00 per unit 5/15 Sold 40 units 5/21 Purchased 300 units @ $5.00 per unit 5/31 Purchased 40 units @ $10.00 per unit In addition, it has been determined that Rubric's inventory at the beginning of the month was $400.00 200 units). What was Rubric's cost per unit at the end of May, using the moving average method?

Near the end of 2016, Spruce Co. made the following purchases. The months involved in all cases are December 2016 and January 2017. What amount of the above purchases should be included in Spruce's inventory at December 31, 2016?

Net purchases is computed as follows:

Which one of the following statements is false?

Management's choice to use LIFO or FIFO can make a financial analyst's efforts to compare companies difficult. The financial analyst's job is made easier because of the

There are many different methods available for costing inventory. Therefore, the decision on which method to select should involve some serious thought as to the consequences involved. Required: a. Discuss the objectives of inventory costing in terms of accounting principles. a. One objective of inventory costing is to match costs of goods sold with the revenues they helped generate in conformity with the matching principle. The other objective in inventory costing is to assign an appropriate value to the b. Explain the consequences of the method selected.

At December 31, 2016, Jefferson, Inc. had inventory on hand amounting to $270,000. The following items were not included in this inventory: ∙ Goods sold and still in transit, shipped Dec. 29 FOB destination, sales price $12,000, freight costs $500. ∙ Goods held by Johnson on consignment from Miller Company, sales price $12,500, shipping costs $300. ∙ Goods returned by customers and held pending inspection, cost $1,100. On Jan. 1, 2017, a monthly freight bill for $1,600 was received. The bill specifically related ∙ to merchandise purchased in December 2016, 40 percent of which was sold in December. No related adjustment had yet been made. Jefferson sells at a gross profit of 25% on cost. Required: Compute the cost of ending inventory to be reported on Jefferson's December 31, 2016, balance sheet.

Goods in transit shipped FOB shipping point should be included in the inventory of the

On July 1, Maxwell Company had 40 units of inventory at a cost of $6 per unit. July purchases and sales were as follows: The cost of goods sold during July was $272. Maxwell must use:

The second step in calculating dollar-value LIFO is to

Which of the following is not an advantage of a perpetual inventory system?

What are the differences between the perpetual and periodic inventory systems?

Which one of the following statements is true?

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers. Required: a. Explain what is meant by inventory liquidation under the LIFO cost flow assumption. a. Inventory liquidation occurs when the number of units sold during a period exceeds the number of units purchased. The result is fewer units in ending b. Discuss why this may be a serious problem for LIFO but not for FIFO.

When a seller offers a discount, it can be accounted for under the gross or net price method. What is the difference between the gross and net price method?

The SEC requires a company that uses LIFO to disclose the difference between the LIFO value of the inventory and the FIFO value of the inventory.

Which inventory cost flow assumption is not allowed for financial reporting in many foreign countries?

Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What would be the effect of this change on ending inventory in the year of the change?