Exam 11: Short-Term Operating Assets: Inventory

Sweet Treats is considering a change in its inventory valuation method.Sweet Treats currently uses the FIFO method and is considering a change to the LIFO method.Sweet Treats started the year on January 1 with inventory at a FIFO cost of $31,000 and a LIFO cost of $26,500.The ending inventory on December 31 is $29,650 at FIFO cost and $25,800 at LIFO cost.Cost of goods sold under the LIFO basis is $74,600 for the current year.The LIFO effect is ________.

The gross profit method may not be used for budgeting purposes.

The balance in the LIFO reserve account is the difference between the beginning inventory and ending inventory measured using FIFO.

On June 1,Addison Company purchased $5,000 of inventory on account from Garrison Company.Garrison offers a 3% discount if payment is received within 15 days.Addison records the purchase using the gross method and the perpetual inventory system.The journal entry on June 1 by Addison Company includes ________.

When following U.S.GAAP,which of the following statements is not correct regarding the LCM rule for inventory?

A fire destroyed the warehouse of Reed Enterprises,on August 31,2017.The books and records of Reed showed the following information on that date. The gross profit ratio has averaged 40% of sales for the past six years. Required: Use the gross profit method to estimate the cost of inventory destroyed by fire.

When following U.S.GAAP,the market value of inventory is always equal to the net realizable value.

When costs are increasing,and inventory levels are stable,a company will report ________.

What are the advantages of using of dollar-value LIFO

On June 1,Johnson Company purchased $5,000 of inventory on account from Schmid Company on June 1.Schmid Company offers a 3% discount if payment is received within 15 days.Johnson Company records the purchase using the net method and the perpetual inventory system.Johnson Company paid for the inventory on June 30.The journal entry on June 30 by Johnson Company includes ________.

The Butters Company uses the FIFO perpetual inventory system.The company has the following data available for the month of January: The selling price per unit is $1,000.Selling and administrative expenses for the month total $100,000.Interest expense for the month is $10,000.The tax rate is 30%. Required: Prepare the income statement for the month ending January 31,2015 using a multiple-step format.

Hougton Company follows U.S.GAAP and has the following inventory data available: The company has 1,000 shirts of each style in stock at year end.The company uses the indirect method to record the lower-of-cost-or-market rule. Required: 1.a.Determine the value of inventory reported on the balance sheet at year end if the lower-of-cost-or-market rule is applied to each inventory item. b.Prepare the journal entry required at year end. 2.a.Determine the value of inventory reported on the balance sheet at year end if the lower-of-cost-or-market rule is applied to the shirts as a group of items.Use gender to group the items. b.Prepare the journal entry required at year end.

Christian Company uses the gross method of recording purchase discounts on inventory and the perpetual inventory system.When Christian Company makes payment for the inventory within the discount period,the bookkeeper will ________.

When following U.S.GAAP,firms can use two methods to write down inventory to market,if needed. Required: 1.What are the two methods called? 2.If there is a loss,describe the journal entry for both methods. 3.If there is a significant loss,which method is preferred? Why is this the case?

The inventory allocation method used for companies that maintain base stocks of inventory items is the ________.

The retail inventory method that estimates the lower-of-cost-or-market of ending inventory is the ________.

The first step in applying the gross profit method of determining inventory is to take a physical count of the goods.

If the LIFO Reserve increases during the year,Cost of Goods Sold will higher under LIFO than FIFO.

When following U.S.GAAP,the lower-of-cost-or-market rule for inventory requires a firm to report ________.

Basking Company adopted the dollar-value LIFO method in 2014.At December 31,2014,ending inventory was $100,000,with a price index of 1.00,using dollar-value LIFO.At December 31,2015,the ending inventory using FIFO is $120,000 and the price index is 1.15.Round all dollar amounts to the nearest dollar.Basking Company's ending inventory at December 31,2015 on a dollar-value LIFO basis is ________.