A major advantage of the retail inventory method is that it hides costs from competitors and customers provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies gives a more accurate statement of inventory costs than other methods provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period

A major advantage of the retail inventory method is that it hides costs from competitors and customers provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies gives a more accurate statement of inventory costs than other methods provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period

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Description: A major advantage of the retail inventory method is that itO hides costs from competitors and customersprovides a method for inventory control and facilitates determination of the periodic inventory forcertain types of companiesgives a more accurate

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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A major advantage of the retail inventory method is that it
O hides costs from competitors and customers
provides a method for inventory control and facilitates determination of the periodic inventory for
certain types of companies
gives a more accurate statement of inventory costs than other methods
provides reliable results in cases where the distribution of items in the inventory is different from that
of items sold during the period

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Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.
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You have been asked by the financial vice president to develop a short presentation on the LCNRV method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company’s inventory has declined in value. Instructions The financial vice president asks you to answer the following questions. a. What is the purpose of the LCNRV method? b. What is meant by “net realizable value”? c. Do you apply the LCNRV method to each individual item, to a category, or to the total of the inventory? Explain. d. What are the potential disadvantages of the LCNRV method?