Question 1

William Company uses the periodic inventory system and has provided the following data:  Required: 
A.Calculate the following using both: FIFO and LIFO inventory methods.  
B.In times of rising unit costs, how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Accepted Answer

A.  B. FIFO pretax income is higher than LIFO pretax income in times of rising unit costs. FIFO matches older lower unit costs to current period sales providing for higher gross profit and net income.

Question 2

Which of the following costs will not affect cost of goods sold?

Accepted Answer

A)  Inventory inspection costs.
B)  Inventory preparation costs.
C)  Inventory-related selling costs.
D)  Freight charges incurred to bring inventory to the warehouse. C

Question 3

Inventory turnover under LIFO is greater than inventory turnover under FIFO when unit costs are increasing.

Accepted Answer

A) True 
 B)False  True

Question 4

RJ Corporation has provided the following information about one of its inventory items:  During the year, RJ sold 3,000 units. What was ending inventory using the FIFO cost flow assumption under a periodic inventory system?

Accepted Answer

A)  $640,000.
B)  $840,000.
C)  $960,000.
D)  $880,000.

Question 5

Freeman Company uses the periodic inventory system and applied LIFO inventory costing. At the end of the annual accounting period, December 31, 2016, the accounting records in inventory showed:  Required:
Calculate the following:
1. Cost of goods available for sale
2. Ending inventory
3. Cost of goods sold

Accepted Answer

The answer of Freeman Company uses the periodic inventory system...

Question 6

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers:  During the year, Lauer sold 750 laptop computers. What was cost of goods sold using the LIFO cost flow assumption?

Accepted Answer

A)  $725,000.
B)  $740,000.
C)  $735,000.
D)  $720,000.

Question 7

Which of the following statements is correct when inventory unit costs are increasing?

Accepted Answer

A)  LIFO's ending inventory will be the largest among the inventory costing methods.
B)  FIFO's gross profit will be the lowest among the inventory costing methods.
C)  Inventory turnover will be the largest when the LIFO inventory method is used.
D)  Use of the LIFO method will result in lower cash flows due to an increased cost of goods solD.LIFO has the largest cost of goods sold and the lowest ending inventory and therefore the largest inventory turnover ratio.

Question 8

On December 31, 2016, Cruise Company has 10,000 units of an inventory item, which cost $40 per unit when purchased on June 15, 2016. The selling price was $60 per unit. On December 30, 2016 it was determined that disposal cost was $24 per unit. At what amount should the 10,000 units of inventory be reported at on the December 31, 2016 balance sheet?

Accepted Answer

A)  $400,000.
B)  $360,000.
C)  $160,000.
D)  $40,000.

Question 9

Which of the following statements is false?

Accepted Answer

A)  Companies do not have to use the same inventory method for all items of inventory.
B)  Companies do not have to consistently use the same inventory costing methods.
C)  Use of the LIFO inventory method during a period of increasing unit costs may create a conflict of interest between the owners and managers.
D)  A company choosing to maximize stockholders' equity during a period of increasing unit costs should use the FIFO inventory methoD.GAAP requires companies to consistently apply their inventory costing methods.

Question 10

Maxim Corp. has provided the following information about one of its products:  During the year, Maxim sold 400 units. What is ending inventory using the average cost method?

Accepted Answer

A)  $48,000.
B)  $64,000.
C)  $50,000.
D)  $62,000.

Question 11

RJ Corporation has provided the following information about one of its inventory items:  During the year, RJ sold 3,000 units. What was cost of goods sold using the average cost flow assumption under a periodic inventory system?

Accepted Answer

A)  $11,680,000.
B)  $11,590,000.
C)  $11,480,000.
D)  $11,550,000.

Question 12

Cutting Edge Technologies reported the following information in its 2016 annual report:  Required:
1. Determine the inventory turnover ratio. (Round your answer to two decimal places.)
2. Determine the average days to sell inventory. (Round your answer to a whole number.)
3. Explain the meaning of each ratio.

Accepted Answer

The answer of Cutting Edge Technologies reported the following information...

Question 13

An overstatement of the 2015 ending inventory results in an understatement of net income during 2016.

Accepted Answer

A) True 
 B)False

Question 14

During periods of increasing unit costs, the LIFO inventory method results in lower income taxes.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following costs is not included as inventory on the balance sheet?

Accepted Answer

A)  Raw materials to be used in the manufacturing process.
B)  Work in process.
C)  Finished goods.
D)  Freight-out costs for finished goods sent to retailers.

Question 16

When a company uses the periodic inventory system, which of the following is true?

Accepted Answer

A)  Purchases are recorded in the cost of goods sold account.
B)  The inventory account is updated after each sale.
C)  Cost of goods sold is computed at the end of the accounting period rather than at each sale date.
D)  The inventory account is updated throughout the year as purchases are made.

Question 17

Which of the following statements is correct?

Accepted Answer

A)  FIFO reports lower net income amounts than LIFO when unit costs are increasing.
B)  LIFO reports a higher net income amount than FIFO when unit costs are increasing.
C)  LIFO reports a higher net income amount than FIFO when unit costs are decreasing.
D)  LIFO reports the same amount of net income as FIFO when unit costs are increasing.

Question 18

Compute the missing amounts that are numbered in parentheses for the income statement of each independent case. (Hint: Each case need not be calculated in the numerical order of the missing numbers.)

Accepted Answer

The answer of Compute the missing amounts that are numbered...

Question 19

How much was ending inventory when sales revenue was $500,000, purchases were $310,000, beginning inventory was $22,000, and gross profit was $200,000.

Accepted Answer

The answer of How much was ending inventory when sales...

Question 20

Assume Webster Company buys bicycle helmets at a unit cost of $30 and sells them at a unit price of $52. There was no inventory at the beginning of the period.
Required:
Provide the journal entries required below by entering the account code of the appropriate account and the amount for each debit and credit:

Accepted Answer

The answer of Assume Webster Company buys bicycle helmets at...

Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

William Company uses the periodic inventory system and has provided the following data: Required: A.Calculate the following using both: FIFO and LIFO inventory methods. B.In times of rising unit costs, how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.