Exam 9: Inventories

Konan, Inc. uses the lower of cost or market method to determine inventory value. The following information pertains to the ending inventory: Item Cost Replacement Cost Selling Price Cost of Completion Normal Profit L-19 \ 40 \ 38 \ 50 \ 2 \ 11 M-23 52 40 60 4 14 N-05 20 24 30 2 6 -The "market" value for item N-05 is

Generally accepted accounting principles do not allow variable costing to be used in external financial statements because absorption costing makes it easier for financial statement users to interpret year-to-year changes in reported income.

The choice of method for allocating the cost of goods available for sale between ending inventory and cost of goods sold represents the major issue in inventory accounting.

TAD,Inc.uses the lower of cost or market method to value inventory.If the inventory value is replacement cost,which one of the following statements is true?

Both U.S.GAAP and IFRS apply lower of cost or market in the same manner when accounting for inventory.

The formula to convert the cost of goods sold LIFO to an estimate of the cost of goods sold FIFO is

A cash purchase discount that is lost because of a late payment should be recorded as interest expense rather than as a cost of acquiring inventory.

Konan, Inc. uses the lower of cost or market method to determine inventory value. The following information pertains to the ending inventory: Item Cost Replacement Cost Selling Price Cost of Completion Normal Profit L-19 \ 40 \ 38 \ 50 \ 2 \ 11 M-23 52 40 60 4 14 N-05 20 24 30 2 6 -The lower of cost or market for item M-23 is

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the severity of input cost changes and the rapidity of physical inventory turnover.

Because IFRS do not permit the use of LIFO,inventory holding gains are included in income.

The Shill Company uses the dollar-value LIFO method for valuing inventory. The following inventory information is available at the end of the year: Year Year-End Price Price Index 1 \ 200,000 100 2 250,000 105 3 296,000 108 4 286,000 110 -The inventory under dollar-value LIFO at the end of Year 3 is

In a periodic inventory system the ending inventory must be determined by

LIFO's tax advantage is that

Firms that use FIFO inventory cost assumptions always include some realized holding gains in reported income in periods of

A periodic inventory system is preferable if avoiding "stock-outs" is of paramount importance-for example in manufacturing firms that use just-in-time systems.

All inventory items to which the firm has legal title should be included in the inventory account although most firms record inventory only when they physically receive it.

When applying the lower of cost or market method,market value cannot exceed the

The Xano Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements.The company also reported a LIFO reserve of $34,000.An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is

When purchases and sales occur continuously,the most recently incurred costs will be virtually identical to current replacement cost so LIFO provides a good match between current costs and current revenues.

Under either LIFO or FIFO it is impossible to simultaneously reflect both the balance sheet inventory and cost of goods sold at current cost.