Review Exercises7-41M7-8Assuming no beginning inventory, what can be saidabout the trend of inventory prices if cost of goodssold computed when inventory is valucd using theFIFO method exceeds cost of goods sold wheninventory is valued using the LIFO method?Under the dollar-value LIFO inventory method,Kern's inventory method, Kern's inventory onDecember 31, 2016, would be:LO 7.5a. $650,000b. $655,000c. $660,000d. $720,000a. Prices decreased.When the double-extension approach to thedollar-value LIFO inventory cost flow method isused, the inventory layer added in the current yearis multiplied by an index number. How would thefollowing be used in the calculation of this indexnumber?M7-10b. Prices remained unchanged.c. Prices increased.d. Price trend cannot be determined frominformation given.LO 7.7On December 31, 2015, Kern Company adoptedthe dollar-value LIFO inventory method. All ofKern's inventories constitute a single pool. Theinventory on Dccember 31, 2015, using the dollar-value LIFO inventory method was $600,000.Inventory data for 2016 are as follows:M7-9LO 7.7Ending Inventory atCurrent-Year CostEnding Inventory atBase-Year CostNumeratorDenominatorNot Useda.NumeratorDenominatorNot UsedC.NumeratorDec. 31, 2016 inventory at year-endpricesRelevant cost index at year-end (baseyear 2015)Denominator$780,000120

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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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On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item as shown in Exhibit below. Item Inventory Quantity Unit Cost Price ($) Unit Market Price ($) MT22 1642 91 88 4WY09 5278 37 44 1GDS 8898 185 172
If beginning inventory is understated by $11800, the effect of this error in the current period is Cost of Goods Sold Net Income Net Income overstated understated understated overstated understated understated overstated overstated
Compared to using the weighted average cost method to account for inventory, during aperiod in which prices are generally rising, the current ratio of a company using the FIFOmethod would most likely be:A. lower.B. higher.C. dependent upon the interaction with accounts payable.
Under which inventory cost flow assumption is the cost of the most recent purchase matched first with sales revenues? Select one: A. FIFO B. Weighted average cost C. LIFO
Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? Da. Gross profit is understated. Ob. Owner's equity is overstated. Oc. Net income is understated. Od. Cost of merchandise sold is overstated.
During a period of rising prices, which U.S. GAAP inventory method reports the most current inventory costs on the income statement and on the balance sheet? a. Income Statement Balance Sheet LIFO LIFO b. FIFO FIFO c. FIFO LIFO d. LIFO FIFO
Which of the following regarding the lower of cost ormarket rule for inventory are true?(i) The lower of cost or market rule is an example of thehistorical cost principle.(ii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, net income is reduced.(iii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, total assets are reduced.a. (i) only c. (ii) and (iii)b. (ii) only d. All of the above
According to IAS 2, inventory must be reflected at the lower of cost and net realisable value. Which one of the following is not an indicator of possible adjustments to the net 8. realisable value? 1. A decline in selling prices. 2. Decrease in selling costs. 3. Damaged inventories. 4. Wholly or partially obsolete inventories.
Proponents of the LIFO inventory cost flow assumption argue that this costing method is superior to the alternatives because it results in better matching of revenue and expense. Required: a. Under LIFO, the release of the most recent purchase costs to the Cost of Goods Sold account results in better matching of revenue and expense. b. What is the impact on the carrying value of inventory in the balance sheet when LIFO rather than FIFO is used during periods of inflation? a. b. It understates the value of inventory in the balance sheet. It overstates the value of inventory in the balance sheet.
The cost of goods sold is based on the oldest purchases under which method of calculating inventory cost? O A. weighted average method O B. first in, first out (FIFO) O C. gross profit method O D. last in, first out (LIFO)
Question: Which of the following inventory valuation methods typically results in higher ending inventory value during periods of rising prices? A) FIFO (First-In-First-Out) method B) LIFO (Last-In-First-Out) method C) Weighted Average method D) Specific Identification method
Which of the following statements about the use of the FIFO assumption is NOT true? a.The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account. b.The FIFO assumption is not affected by the inventory control method. c.In periods of rising prices it produces a higher profit than LIFO. d.The FIFO assumption produces inventory asset values that are based on older purchase costs.

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