Exam 5: Accounting for Inventories

If some inventory items have declined in value from damage or obsolescence, what effect will the lower-of-cost-or-market rule have on the amount of inventory shown on the balance sheet?

If Singh uses the weighted-average cost flow method, its weighted-average cost per unit would be $8.00.

List the specific steps used in computing the estimated inventory balance using the gross margin method.

In an inflationary period, which inventory cost flow method, FIFO or LIFO, is more desirable from a tax standpoint? Why?

Cousins Company had the following transactions for the month of January: Assume that Cousins uses the perpetual inventory method and that all transactions were for cash. Required: a) Prepare journal entries for the above transactions using the FIFO cost flow method. b) Determine the amount of ending inventory using the FIFO cost flow method.

Explain the computation of and the significance of inventory turnover.

The gross margin method requires all but which of the following elements of information?

In a world with inflation, but no income tax, how does the choice between LIFO and FIFO affect a company's cash flows? Would the presence of an income tax system cause a difference in the amount of cash outflow when using FIFO versus LIFO?

Determine the amount of gross margin assuming the FIFO cost flow method.

A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.

Discuss the significance of the average number of days to sell inventory.

Wu Company sold 150 units @ $350 each on October 31, 2013. The following information is also available: Required: a) Determine the amount of cost of goods sold using: FIFO LIFO Weighted Average b) Determine the amount of ending inventory using: FIFO LIFO Weighted Average

An error that results in overstating ending inventory would have what effect on the company's financial statements in the current year?

The last-in, first-out cost flow method assigns the cost of the items purchased last to ending inventory.

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

Determine the weighted average cost per unit for May.

When using the gross margin method to estimate inventory, which of the following is a step in the computation?

Company A and Company B are similar retailing businesses. A uses FIFO, and B uses LIFO. In a period of rising prices, A should have a higher inventory turnover than B.In a period of rising prices, FIFO will result in lower cost of goods sold (earlier, lower prices) and higher ending inventory (more recent, higher prices). The lower cost of goods sold divided by the higher inventory will produce a lower inventory turnover.

Greene's ending inventory under LIFO would be:

Mandela Company's first year in operation was 2013. The following inventory information comes from Mandela's accounting records for the year. During the year, Mandela sold 350 units for $240 each. Operating expenses for the year were $15,000, and the tax rate was 30%. Required: a) Calculate the cost of goods sold by LIFO and by FIFO. b) What amount of income tax would Mandela have to pay if it uses LIFO? If it uses FIFO? c) Assuming that the results for 2013 are representative of what Mandela can generally expect, would you recommend that the company use LIFO or FIFO? Explain.