Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 6, Problem 6.9BE
Identify financial statement effects of FIFO and LIFO (LO6–4)
For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling. The first answer is provided as an example.
| Inventory Costs | Higher Total Assets | Higher Cost of Goods Sold | Higher Net Income |
| Rising | FIFO | ||
| Declining |
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For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling. The first answer is provided as an example.
Which Inventory Valuation method gives the highest profit when inventory costs are rising?
a. Weighted Average
b. FIFO
c. It is not possible to calculate which methd gives highest profit
d. LIFO
Can you explain why the answer is B and not C. If inventory prices are decreasing wouldnt LIFO result in a lower COGS and which would lead to a higher Net income thus higher income tax expense?
Chapter 6 Solutions
Financial Accounting
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - What is the difference among raw materials...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - What is a multiple-step income statement? What...Ch. 6 - Cheryl believes that companies report cost of...Ch. 6 - What are the three primary cost flow assumptions?...Ch. 6 - 9.Which cost flow assumption generally results in...Ch. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - 12.Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Explain how freight charges, purchase returns, and...Ch. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - How is gross profit calculated? What is the gross...Ch. 6 - 21.Explain how the sale of inventory on account is...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 6.1BECh. 6 - Prob. 6.2BECh. 6 - Calculate cost of goods sold (LO62) At the...Ch. 6 - Prob. 6.4BECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.8BECh. 6 - Identify financial statement effects of FIFO and...Ch. 6 - Prob. 6.10BECh. 6 - Prob. 6.11BECh. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Prob. 6.22BECh. 6 - Calculate cost of goods sold (LO62) Russell Retail...Ch. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Calculate inventory amounts when costs are rising...Ch. 6 - Calculate inventory amounts when costs are...Ch. 6 - Record Inventory transactions using o perpetual...Ch. 6 - Record inventory purchase and purchase return...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Record transactions using a perpetual system...Ch. 6 - Record transactions using a perpetual system...Ch. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Calculate cost of goods sold, the inventory...Ch. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18ECh. 6 - Record inventory purchases and sales using a...Ch. 6 - Prob. 6.20ECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2APCh. 6 - Prob. 6.3APCh. 6 - Prob. 6.4APCh. 6 - Prob. 6.5APCh. 6 - Prob. 6.6APCh. 6 - Prob. 6.7APCh. 6 - Prob. 6.8APCh. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10APCh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2BPCh. 6 - Prob. 6.3BPCh. 6 - Prob. 6.4BPCh. 6 - Prob. 6.5BPCh. 6 - Prob. 6.6BPCh. 6 - Prob. 6.7BPCh. 6 - Use the inventory turnover retio end gross profit...Ch. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10BPCh. 6 - Prob. 6.1APCPCh. 6 - Prob. 6.2APFACh. 6 - Prob. 6.3APFACh. 6 - Prob. 6.4APCACh. 6 - Prob. 6.5APECh. 6 - Prob. 6.6APIRCh. 6 - Written Communication You have just been hired as...Ch. 6 - Prob. 6.8APEM
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- Gross profit will be the: A. highest if LIFO is used and inventory costs are decreasing. B. highest if FIFO is used and inventory costs are increasing. C. lowest if LIFO is used and inventory costs are increasing. D. all of the abovearrow_forwardDuring periods of declining prices, when comparing LIFO and FIFO inventory methods: A. LIFO inventory and cost of goods sold would be higher than FIFO B. LIFO inventory and cost of goods sold would be lower than FIFO. C. LIFO inventory would be lower and cost of goods sold would be higher than FIFO. D. LIFO inventory would be higher and cost of goods sold would be lower than FIFO.arrow_forward13.In periods of rising prices, which is an advantage of using the LIFO inventory costing method? a. Ending inventory will include latest (most recent) costs and thus be more realistic. b. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. C. Net income will be the highest and thus reflect the prosperity of the company. d. Phantom profits are reported. 14 In a period of increasing prices, which inventory flow assumption will result in the lowestarrow_forward
- 1.At a time of declining prices, which cost flow assumption will result in the highest ending inventory? A. FIFO B. LIFO C. Weighted average D. Either A or C 2. When the cost of inventory is rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? A. FIFO B. Weighted Average. C. All methods will produce the same amount of cost of goods sold. D. LIFO 200 The inventory records for Raymond Co. reflected the following Beginning Inventory @ May 1 200 units @ $1.00 First Purchase @ May 7 Second Purchase @ May 17 Third Purchase @ May 23 Sales @ May 31 B. $1.15 C. $1.14 D. $1.31 B. $130 C. $324 D. $340 300 units @ $1.10 = 400 units @ $1.20 100 units @ $1.30 = 120 900 units @ $1.50 1350 30 go 3. Determine the weighted average cost per unit for May. A. $1.22 .4.Determine the amount of cost of goods sold assuming the LIFO cost flow method. A. $1,140 B. $1,040 C. $1,000 D. $940 5. Determine the amount of gross margin assuming the FIFO cost flow method. A. $114arrow_forwardDon't use Ai and chatgpt. Answer in step by step with explanation.arrow_forwardWhich of the following is true regarding LIFO and FIFO? A) In a period of decreasing costs, LIFO results in lower total assets than FIFO. B) In a period of decreasing costs, LIFO results in lower net income than FIFO. C) In a period of rising costs, LIFO results in lower net income than FIFO. D) The amount reported for COGS is based on net realizable value of inventory if LIFO is used. E) None of the Abovearrow_forward
- 10.In periods of rising prices (inflation), the use of which of the following inventory cost flow method would result in the lowest cost of goods sold a. First-in, first-out method b. Last-in, first-out method c. Weighted average method d. Moving average methodarrow_forward1.Which of the following may not result to the amount of cost of sales? a.Net purchases less net increase in inventory b.Net decrease in inventory plus net purchases c.Total goods available for sale less beginning inventory d.Total goods available for sale less ending inventoryarrow_forward6arrow_forward
- 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.arrow_forwardIf production is equal to sales, FG ending inventory increases therefore net income under AC and VC will be same Select one: True Falsearrow_forwardWhen purchase prices are rising, which of the following statements is true? a.LIFO produces a higher cost of goods sold than FIFO. b.LIFO produces a higher cost for ending inventory than FIFO. c.FIFO produces a lower amount for net income than LIFO. d.Weighted average cost produces a higher net income than FIFO or LIFO.arrow_forward
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