Assume that the ending inventory of a merchandising firm is overstated by $40,000. a. By how much and in what direction (overstated or understated) will the firms cost of goods be misstated? b. If this error is not corrected, what effect will it have on the subsequent period's operating income? c. If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is an error and the subsequent period) combined?

Q: This year your company has purchased less expensivemerchandise inventory but has not changed its…

A: Gross Profit is a difference between Net sales and Cost of goods sold. The formula for calculating…

Q: Under the LIFO cost flow assumption during a period ofinflation, which of the following is false? A.…

A: Inflation and cost of goods sold - a company selling goods during periods of inflation will see an…

Q: If the ending inventory of a firm is overstated by $49,000, by how much and in what direction…

A: Computation of Income: Gross Profit = Sales – COGS COGS = Opening Inventory + Purchases – Closing…

Q: For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies: a.…

A: The inventory can be valued using various methods as FIFO, LIFO and average method. FIFO stands for…

Q: Which of the following statements regarding the lower of cost and net realizable value (LCNRV) rule…

A: The rule of valuing the inventory at cost or net realizable value is also called as Prudence concept…

Q: Application of the lower-of-cost-or-market rule results in inconsistency because a company may value…

A: Lower of Cost or market rule states that while estimating value of the company's Inventory it is…

Q: Which of the following statements about the quality of earnings ratio is true? Multiple Choice…

A: Lets understand the basics. Quality of earning ratio indicates the cashflow from operating activity…

Q: During a period of rising inventory costs and stable output prices, describe how net income and…

A: First in first out Method (FIFO) First in first out method is one of the popular method which was…

Q: The management of Milque Corp. is considering the effects of various inventory-costing methods on…

A: Particulars Inventory price FIFO LIFO Net income Increasing Increases Decreases Ending inventory…

Q: Overstating ending inventory in the current year causes net income in the current year to be…

A: 1. True 2. False The weighted-average cost includes both beginning inventory and purchases and is…

Q: Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the…

A: Given information is: Ajax Corporation overstates its ending inventory amount.

Q: 1. In a period of rising prices, the inventory reported in Huang Company's balance sheet is close to…

A: Note: As per our guidelines, only the first question shall be answered.   1. The FIFO technique is…

Q: If a company has three lots of products for sale, purchase 1 (earliest) for $17, purchase 2 (middle)…

A: Deflationary cost pattern means where prices are falling continuosly.

Q: If prices are rising and a company is using LIFO, large purchases of inventory near the end of the…

A: If prices are rising and a company is using LIFO, large purchases of inventory near the end of the…

Q: Which of the following statement is not valid as it applies to inventory costing method?  A) If…

A: The correct answer is Option (d)

Q: In a period of rising prices,a. cost of goods sold under LIFO will be less than under FIFO.b. gross…

A:

Q: The management of Milque Corp. is considering the effects of inventory-costing methods on its…

A: FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the…

Q: Which of the following is false? Select one: a. Days’ sales in inventory is equal to the average…

A: Option “B” is False.

Q: If a company has three lots of products for sale, purchase 1 (earliest) for $17, purchase 2…

A: The cost pattern represents the trend of the cost price of the products.

Q: 1. If the inventory account at the end of the year is understated, the effect will be to…

A: SOLUTION- IF ENDING INVENTORY IS UNDERSTATED , THE COST OF GOOD SOLD FOR THAT YEAR (2018) WILL BE…

Q: If the ending inventory of a firm is overstated by $56,000, by how much and in what direction…

A: The answer is as fallows

Q: When a company determines that the net realizable value of its ending inventory is lower than its…

A: Lower of cost and net realizable value: The lower of cost and net realizable value is a method which…

Q: Which of the following is false? Select one: a. Day's sales in inventory is equal to the average…

A: The correct option is part (b), that is higher day’s sales in inventory means that inventory is less…

Q: If ending inventory is overstated in the current fiscal year, what effect will this have on net…

A: The question is multiple choice question and related with overstated ending inventory. The ending…

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.