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Exam 6: Reporting and Analyzing Inventory

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Question 71

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The management of Otto Corp. is considering the effects of various inventory costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: 1. result in the lowest income tax expense? 2. provide the highest net income? 3. provide the highest ending inventory? 4. result in the most stable earnings over a number of years?

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1. In times of rising costs the LIFO met...

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Question 72

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If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.

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B) False

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Question 73

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In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the

A manufacturer's inventory consists of raw materials, work in process, and finished goods.

A survey of major U.S. companies revealed that 77% of those companies used either LIFO or FIFO cost flow methods, while 19% used average cost, and only 4% used other methods. Requirement Provide brief, yet concise responses to the following questions. a. Why are LIFO and FIFO so popular? b. Since computers and inventory management software are readily available, why aren't more companies using specific identification?

IFRS defines market for lower-of-cost-or market as

An assumption about cost flow is necessary

The Entertainment Center accumulates the following cost and market data at December 31. What is the lower-of-cost-or-market value of the inventory?

Hanlin Company uses the periodic inventory system to account for inventories. Information related to Hanlin Company's inventory at January 31 is given below: Instructions 1. Show computations to value the ending inventory using the FIFO cost assumption if 600 units remain on hand at January 31. 2. Show computations to value the ending inventory using the weighted-average cost method if 600 units remain on hand at January 31. 3. Show computations to value the ending inventory using the LIFO cost assumption if 600 units remain on hand at January 31.

The consistent application of an inventory costing method enhances

The lower of cost or market basis of valuing inventories is an example of

Noise Makers Inc has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the average cost method, the value of ending inventory is

Snug-As-A-Bug Blankets has the following inventory data: Assuming that a perpetual inventory system is used, what is ending inventory (rounded) under the average cost method for July?

A major criticism of the FIFO inventory method is that it magnifies the effects of the business cycle on business income.

Dole Industries had the following inventory transactions occur during 2014: The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Which inventory costing method should a gasoline retailer use?

Which of the following companies would most likely have the highest inventory turnover?

Bonkers Bananas has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

The following information is available from the annual reports of Young and Olde: Instructions (a) Calculate the inventory turnover and days in inventory for both companies. (b) Calculate Young's inventory turnover after adjusting for the LIFO reserve. Young uses the LIFO inventory method. (c) What conclusion concerning the management of inventory can be drawn from these data?