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Exam 8: Inventories: Measurement

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Question 61

Multiple Choice

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If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes:

A) When inventory purchase costs are rising.
B) When inventory purchase costs are declining.
C) Whether inventory purchase costs are declining or rising.
D) LIFO liquidations are not problematic for a company's income taxes.

E) C) and D)
F) A) and B)

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Question 62

Multiple Choice

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Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

A) $5,940.
B) $5,880.
C) $6,000.
D) $6,120.

E) C) and D)
F) B) and C)

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Question 63

Multiple Choice

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Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover ratio, compared to Company B's, would be:

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a perpetual inventory system.

Bascomb Company purchased $420,000 in merchandise on account during the month of April, and merchandise costing $350,000 was sold on account for $425,000. Required: 1. Prepare journal entries to record the purchases and sales assuming Bascomb uses a perpetual inventory system. 2. Prepare journal entries to record the purchases and sales assuming Bascomb uses a periodic inventory system.

In a perpetual average cost system:

LIFO liquidation profits occur when inventory quantity declines and costs are rising.

Assuming CBC uses the gross method to record purchases, ending inventory would be:

Thompson's 2013 inventory turnover ratio is:

Liquidated Corporation had a DVL inventory of $800,000 at the beginning of the current year when it adopted DVL. Its year-end inventory at year-end prices was $850,000. The index for the current year was 1.08. Required: Compute the DVL inventory (rounded) to be reported at the end of the year.

LIFO always provides a better match of revenue and expense than does FIFO.

Briefly explain how companies that use LIFO can both increase and decrease reported earnings by "managing" ending inventories.

The primary reason for the popularity of LIFO is that it:

Required: The disclosure note indicates an inventory liquidation during 2010 and 2011. By how much did net income in 2010 increase due to the liquidation? Assume an income tax of 40%.

Costs and prices regularly fall every year in the microcomputer industry. Briefly indicate your recommendation and rationale for an inventory method for a firm about to enter this industry.

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses average cost and a perpetual inventory system.

What is ending inventory assuming Northwest uses the gross method to record purchases?

Cost of goods on consignment is included in the consignee's inventory until sold.

The Mateo Corporation's inventory at December 31, 2013, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following: ▪ Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2013, was received on January 5, 2014. ▪ Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2013, was received on January 3, 2014. ▪ Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer's location on January 6, 2014. ▪ Merchandise costing $12,000 was being held on consignment by Traynor Company. What amount should Mateo Corporation report as inventory in its December 31, 2013, balance sheet?

FIFO periodic and FIFO perpetual always produce the same amounts for cost of goods sold.