Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio? a. Increase the current ratio and increase the acid-test ratio.b. No change to the current ratio and decrease the acid-test ratio.c. Decrease the current ratio and decrease the acid-test ratio.d. Increase the current ratio and decrease the acid-test ratio.

Q: When there are no inventory at the beginning or at the end of the period, the total purchases will…

A: The total purchase amount is the price agreed upon by the buyer and seller for an item, including…

Q: If ending inventory is understaffed for year 1, then in year 2…. A. Costa of goods sold and gross…

A: Inventory is the term used in accounting which refers to the goods as well as materials that the…

Q: Match the inventory method with its related characteristic. Assume a period of rising prices in all…

A: The objective of the question is to match the inventory valuation methods (LIFO, FIFO, Weighted…

Q: Which of the following statements is true for a company using the periodic inventory method? A.…

A: Inventory valuation is referred to as that method which helps in assigning a monetary value to the…

Q: Which of the following variations of the reail inventory method would generally result in the lowest…

A: FIFO is a method used to value inventories. In First-In-First-Out (FIFO) method the cost of the…

Q: (True or False) Cost of sales, under the periodic system, is calculated as inventory at start (plus…

A: Periodic Inventory System - Under periodic inventory system cost of goods sold will be calculated at…

Q: Compare the financial effects (ignore income tax) of using period of declining prices on the…

A: Depreciation is the process of reducing the value of the assets. It is a non-cash expense of the…

Q: 6. Assume inventory costs are increasing over time. a. Will FIFO or LIFO lead to higher Cost of…

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

Q: The Quick Ratio is often use in conjuction with the current ratio because A It is easier to…

A: In finance we use different financial ratios to determine the financial health and position of a…

Q: During a period of rising inventory prices the LIFO cost flow method will result in higher total…

A: LIFO means last in first out which means that newest inventory will be sold first , where as FIFO…

Q: Which of the following will cause a decrease in cash? Increase in A/P Decrease in A/P Increase in…

A: Cash refers to the liquid assets that a company owns. It is used to measure the level of liquidity…

Q: Evaluate different types of risk and costs if the financial director proposed to reduce inventory.…

A: The current ratio is computed by dividing current assets by current liabilities. The acid test ratio…

Q: Inventory Turnover Ratio shows the speed at which the Sales will be converted into cash. Select one:…

A: The ratio analysis helps to analyse the financial statements of the business.

Q: For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount…

A: Last-in-First-Out (LIFO): In this method, items purchased recently are sold first. So, the value of…

Q: A ____ will cause Cost of Goods Sold to decrease. A. Debit  B. Credit

A: Cost of Goods Sold means Cost involved in making of goods or providing services. Direct Material,…

Q: Which one of the following is incorrect? O a. Goods Available for Sale Opening Inventory + Net…

A: Cost of Goods Sold - Cost of Goods Sold is the cost incurred by the company to sell the goods to the…

Q: ending inventory increases therefore net income under AC and VC will be same Select one: True False

A: The income statement can be prepared using various approaches as contribution margin or absorption…

Q: If the dollar amount in ending accounts payable is greater than the dollar amount in beginning…

A: Solution- Accounts payable are amounts due to vendors or suppliers for goods or services received…

Q: Income is to be evaluated under four different situations as follows: a. Prices are rising: (1)…

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

Q: gross profit method assumes

A: The gross profit technique calculates the value of inventory by combining current period data on net…

Q: When the cost of inventory is increasing: LIFO shows lower COGS and lower taxable income FIFO shows…

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

Q: Lower of cost or market is an attribute used for the:   a. initial measurement of accounts…

A: Lets understand the basicsas per IAS 2 "Inventory" inventory should initially be recorded at cost.…

Q: To arrive at gross profit, cost of goods sold is subtracted from the total of sales minus sales…

A: Gross profit is the profit that the company earns after deducting the cost of the goods sold to the…

Q: Assuming rising inventory prices, which statement is correct? Group of answer choices A. FIFO…

A: INTRODUCTION: First in, first out, or FIFO, is a technique of valuing assets or inventories. The…

Q: During the period of increasing prices,

A: FIFO states that the inventory purchased first would be sold first. In the case of rising prices, in…

Q: 11. What is the effect on cost of goods sold, gross profit, and net income if ending mer- chandise…

A: Error in inventory recording can be cancelled or we can say nullified within two consecutive…

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: Compare the financial effects (ignore income tax) of using the FIFO and average inventory cost…

A: FIFO FIFO Means First in, First Out. It is one of the Important Method of Valuation of Inventory.…

Q: The gross profit method and retail inventory method C Are both estimates of ending inventory and…

A: In company, there is a requirement of valuation of the inventory to find out the cost of the goods…

Q: Swing Ltd uses FIFO for its inventory, which is valued at $21,000. It is considering a change to…

A: Inventory should be valued at cost or Net realisable value.

Q: In a peiod of rising prices, which method would yield the lowest ending inventory, highest net…

A: The inventory valuation method used to evaluate the closing inventory and cost of goods sold on the…

Q: Gross Margin of a Merchandise Business will be calculated by using which of the following formula?…

A: Introduction: Income statement: All revenues and expenses are shown in income statement. It tells…

Q: During periods of declining prices, when comparing LIFO and FIFO inventory methods:   A. LIFO…

A: FIFO is first in first out inventory valuation method which says that inventory which is purchased…

Q: If beginning inventory is understated, then: a. goods available for sale will be overstated. b.…

A: The cost of goods sold represents the direct costs of producing goods or purchasing them for resale…

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: When there are no inventory at the beginning or at the end of the period, the total purchases will…

A: Cost of sales means actual cost of goods that is being sold to the customers. It includes beginning…

Q: 3. What is the purpose of the current ratio? Assume that Island Solutions want to compute its…

A: The current ratio is a financial metric that measures a company's ability to cover its short-term…

Q: 1.At a time of declining prices, which cost flow assumption will result in inventory? A. FIFO B.…

A: "Since you have asked multiple questions, we will solve first question for you. If you want any…

Q: Which of the following statements is correct? Group of answer choices A)When cost of goods sold as a…

A: Cost of goods sold is the total costs that is used to create a product or service, which has been…

Q: For the same transactions, why does the weighted-average cost method provide different value for…

A: The key difference between the two systems is the timing of cost calculations. In a perpetual…

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.