Chapter 6, Problem 6.9S

(Learning Objective 2: Compare income, tax, and other effects of the inventory methods) This exercise tests your understanding of the four inventory methods. List the name of the inventory method that best fits the description. Assume that the cost of inventory is rising.

  1.    Results in a cost of ending inventory that is close to the current cost of replacing the inventory

  2.    Used to account for automobiles, jewelry, and art objects

  3.    Generally associated with saving income taxes

  4.    Provides a middle-ground measure of ending inventory and cost of goods sold

  5.    Maximizes reported income

  6.    Enables a company to keep reported income from dropping lower by liquidating older layers of inventory (assume rising prices)

  7.    Writes inventory down when its net realizable value drops below its historical cost

  8.    Results in an old measure of the cost of ending inventory

  9.    Matches the most current cost of goods sold against sales revenue

  10.    Enables a company to buy high-cost inventory at year-end and thereby decrease reported income and income tax