Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 6, Problem 25CE
Effects of Inventory Costing Methods
Refer to your answers for Filimonov Inc. in Cornerstone Exercises 6-22 through 6-24.
Required:
1. In a period of rising prices, which inventory costing method produces the highest amount for ending inventory?
2. In a period of rising prices, which inventory costing method produces the highest net income?
3. In a period of rising prices, which inventory costing method produces the lowest payment for income taxes?
4. In a period of rising prices, which inventory method generally produces the most realistic amount for cost of goods sold? For inventory? Would your answer change if inventory prices were decreasing during the period?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Identify that if prices are rising, which inventory cost flow method will produce the highest amount of ending inventory?
A. Weighted average
B. LIFO
C. FIFO
S. LIFO, FIFO, and weighted average will all produce the same amount of cost of goods sold.
The management of Mastronardo Company is considering the effects of inventory-costing methods on its financial statements.Assuming that the price the company pays for inventory is increasing, which method will:
a.
Provide the highest gross profit?
select a method FIFOLIFOAverage-cost
b.
Provide the highest ending inventory?
select a method FIFOLIFOAverage-cost
If the inventory is valued at cost and the price level is steadily increasing, which type of inventory cost flow method, FIFO, LIFO, or the average cost method, will yield
1- The highest inventory cost. Provide a brief explanation and reasoning .
2- The lowest inventory cost. Provide a brief explanation and reasoning.
3- The highest gross profit. Provide a brief explanation and reasoning.
4- The lowest gross profit. Provide a brief explanation and reasoning.
Chapter 6 Solutions
Cornerstones of Financial Accounting
Ch. 6 - Prob. 1DQCh. 6 - Describe the types of inventories used by...Ch. 6 - Compare the flow of inventory costs between...Ch. 6 - What are the components of cost of goods available...Ch. 6 - How is cost of goods sold determined?Ch. 6 - How do the perpetual and periodic inventory...Ch. 6 - Why are perpetual inventory systems more expensive...Ch. 6 - Prob. 8DQCh. 6 - Prob. 9DQCh. 6 - Prob. 10DQ
Ch. 6 - Prob. 11DQCh. 6 - Why do the four inventory costing methods produce...Ch. 6 - The costs of which units of inventory (oldest or...Ch. 6 - If inventory prices are rising, which inventory...Ch. 6 - How would reported income differ if LIFO rather...Ch. 6 - Prob. 16DQCh. 6 - Why are inventories written down to the lower of...Ch. 6 - What is the effect on the current period income...Ch. 6 - What do the gross profit and inventory turnover...Ch. 6 - Prob. 20DQCh. 6 - How does an error in the determination of ending...Ch. 6 - ( Appendix 6A) What accounts are used to record...Ch. 6 - ( Appendix 6B) For each inventory costing method,...Ch. 6 - If beginning inventory is $20,000, purchases are...Ch. 6 - Which of the following transactions would not...Ch. 6 - Briggs Company purchased $15,000 of inventory on...Ch. 6 - Prob. 4MCQCh. 6 - U-Save Automotive Group purchased 10 vehicles...Ch. 6 - Refer to the information for Morgan Inc. above. If...Ch. 6 - Prob. 7MCQCh. 6 - Refer to the information for Morgan Inc. above. If...Ch. 6 - When purchase prices are rising, which of the...Ch. 6 - Prob. 10MCQCh. 6 - Which of the following statements regarding the...Ch. 6 - Which of the following statements is true with...Ch. 6 - An increasing inventory turnover ratio indicates...Ch. 6 - Ignoring taxes, if a company understates its...Ch. 6 - Prob. 15MCQCh. 6 - ( Appendix 6B) Refer to the information for Morgan...Ch. 6 - ( Appendix 6B) Refer to the information for Morgan...Ch. 6 - Prob. 18MCQCh. 6 - Prob. 19CECh. 6 - Use the following information for Cornerstone...Ch. 6 - Use the following information for Cornerstone...Ch. 6 - Inventory Costing: FIFO Refer to the information...Ch. 6 - Inventory Costing: LIFO Refer to the information...Ch. 6 - Inventory Costing: Average Cost Refer to the...Ch. 6 - Effects of Inventory Costing Methods Refer to your...Ch. 6 - Lower of Cost or Market The accountant for Murphy...Ch. 6 - Inventory Analysis Singleton Inc. reported the...Ch. 6 - Inventory Errors McLelland Inc. reported net...Ch. 6 - Prob. 29CECh. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - Prob. 33BECh. 6 - Prob. 34BECh. 6 - Inventory Costing Methods Refer to the information...Ch. 6 - Effects of Inventory Costing Methods Refer to the...Ch. 6 - Lower of Cost or Market Garcia Company uses FIFO,...Ch. 6 - Inventory Analysis Callahan Company reported the...Ch. 6 - Prob. 39BECh. 6 - ( Appendix 6A) Recording Purchase and Sales...Ch. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - Prob. 42ECh. 6 - Prob. 43ECh. 6 - Perpetual and Periodic Inventory Systems Below is...Ch. 6 - Recording Purchases Compass Inc. purchased 1,250...Ch. 6 - Recording Purchases Dawson Enterprises uses the...Ch. 6 - Recording Purchases and Shipping Terms On May 12,...Ch. 6 - Prob. 48ECh. 6 - Recording Purchases and Sales Printer Supply...Ch. 6 - Inventory Costing Methods Crandall Distributors...Ch. 6 - Inventory Costing Methods On June 1, Welding...Ch. 6 - Financial Statement Effects of FIFO and LIFO The...Ch. 6 - Effects of Inventory Costing Methods Jefferson...Ch. 6 - Inventory Costing Methods Neyman Inc. has the...Ch. 6 - Effects of FIFO and LIFO Sheepskin Company sells...Ch. 6 - Lower of Cost or Market Merediths Appliance Store...Ch. 6 - Lower of Cost or Market Shaw Systems sells a...Ch. 6 - Analyzing Inventory The recent financial...Ch. 6 - Effects of an Error in Ending Inventory Waymire...Ch. 6 - Prob. 60ECh. 6 - ( Appendices 6A and 6B) Recording Purchases and...Ch. 6 - Prob. 62ECh. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - ( Appendix 6B) Inventory Costing Methods: Periodic...Ch. 6 - Applying the Cost of Goods Sold Model The...Ch. 6 - Recording Sale and Purchase Transactions Alpharack...Ch. 6 - Inventory Costing Methods Andersons Department...Ch. 6 - Inventory Costing Methods Gavin Products uses a...Ch. 6 - Lower of Cost or Market Sue Stone, the president...Ch. 6 - Inventory Costing and LCM Ortman Enterprises sells...Ch. 6 - Effects of an Inventory Error The income...Ch. 6 - ( Appendices 6A and 6B) Inventory Costing Methods...Ch. 6 - ( Appendix 6B) Inventory Costing Methods Jet Black...Ch. 6 - Prob. 65BPSBCh. 6 - Recording Sale and Purchase Transactions Jordan...Ch. 6 - Inventory Costing Methods Ein Company began...Ch. 6 - Inventory Costing Methods Terpsichore Company uses...Ch. 6 - Prob. 69BPSBCh. 6 - Prob. 70BPSBCh. 6 - Prob. 71BPSBCh. 6 - ( Appendices 6A and 6B) Inventory Costing Methods...Ch. 6 - ( Appendix 6B) Inventory Costing Methods Grencia...Ch. 6 - Prob. 74.1CCh. 6 - Prob. 74.2CCh. 6 - Prob. 75.1CCh. 6 - Inventory Costing When Inventory Quantities Are...Ch. 6 - Inventory Purchase Price Volatility In 2019, Steel...Ch. 6 - Prob. 77.1CCh. 6 - Prob. 77.2CCh. 6 - Errors in Ending Inventory From time to time,...Ch. 6 - Prob. 78.2CCh. 6 - Prob. 79.1CCh. 6 - Ethics and Inventory An electronics store has a...Ch. 6 - Ethics and Inventory An electronics store has a...Ch. 6 - Prob. 80.1CCh. 6 - Prob. 80.2CCh. 6 - Prob. 80.3CCh. 6 - Prob. 80.4CCh. 6 - Prob. 80.5CCh. 6 - Prob. 80.6CCh. 6 - Comparative Analysis: Under Armour, Inc., vs....Ch. 6 - Comparative Analysis: Under Armour, Inc., vs....Ch. 6 - Comparative Analysis: Under Armour, Inc., vs....Ch. 6 - Prob. 81.4CCh. 6 - Comparative Analysis: Under Armour, Inc., vs....Ch. 6 - Prob. 82.1CCh. 6 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT In...Ch. 6 - Prob. 82.3C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Effects of Inventory Costing Methods Refer to the information for Tyler Company above. Required: 1. Which inventory costing method produces the highest amount for net income? 2. Which inventory costing method produces the lowest amount for taxes? 3. Which inventory costing method produces the highest amount for ending inventory? 4. How would your answers to Requirements 1-3 change if inventory prices declined during the period?arrow_forwardWhen would using the FIFO inventory costing method produce higher inventory account balances than the LIFO method would? A. inflationary times B. deflationary times C. always D. neverarrow_forwardWhich of the following is an advantage of the periodic inventory system? A. frequent physical inventory counts B. cost prohibitive C. time consuming D. real-time information for managersarrow_forward
- In rimes of rising prices, the inventory cost method that will yield the highest cost of goods sold is (a) LIFO. (b) weighted-average. (c) FIFO. (d) none of the above.arrow_forwardUse the last-in, first-out (LIFO) cost allocation method, with perpetual inventory updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for A75 Company, considering the following transactions.arrow_forwardUse the first-in, first-out method (FIFO) cost allocation method, with perpetual inventory updating, to calculate (a) sales revenue, (b) cost of goods sold, and c) gross margin for B75 Company, considering the following transactions.arrow_forward
- Which of the following statements is correct? Group of answer choices A)The choice of an inventory costing method is dependent upon the actual physical flow of the inventory. B)LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet. C)FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet. D)The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing.arrow_forwardIdentify the inventory costing method (SI, FIFO, LIFO, or WA) best described by each of the following separate statements. Assume a period of increasing costs. 1. Precisely matches the costs of items with the revenues they generate. 2. Better matches current costs with revenues. 3. Yields the highest net income. 4. Tends to smooth out the erratic changes in costs. 5. Inventory on the balance sheet approximates its current cost.arrow_forwardA business uses a perpetual inventory system. During periods of rising prices, cost of goods sold using the weighted average cost formula will be: Select one: a. lower than using the FIFO cost formula. b. higher than using the FIFO cost formula. c. indeterminable. d. the same as using the FIFO cost formula.arrow_forward
- Need correct answerarrow_forward22.Which inventory costing method has a stabilizing effect on profit, such that during a period of rising prices its use produces a not so high cost of goods sold and not so low profit as the earlier lower costs tend to stabilize the effect of increasing prices on both cost of goods sold and ending inventory? a. First-in, first-out method b. Last-in, first-out method c. Specific identification method d. Average methodarrow_forwardIf merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income? Select one: a. average cost. b. LIFO. c. FIFO. d. weighted average. e. All methods will result in the same figure of net income.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License