Ch8

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:
B. 5880
Assuming Northwest uses the gross method to record purchases, what is the
cost of goods available for sale?
D. 492550
Assuming CBC uses the gross method to record purchases, ending inventory
would be
C. 15480
ATC's gross profit ratio (rounded) in 2011 is:
A. 53.4%
ATC's inventory turnover ratio for 2011 is
B 2.76
The average days inventory for ATC for 2011 is
C. 132 days
A company that prepares its financial statements according to IFRS can use
each of the following inventory valuation methods except
C. LIFO
Buckeye Corporation adopted dollar-value LIFO on January 1, 2011, when
the inventory value was $500,000 and the cost index was 1.0. On December
31, 2011, the inventory value at year-end costs was $535,000 and the cost
index was 1.06. Buckeye would report a LIFO inventory of:
C. 505000
Bond Company adopted the dollar-value LIFO inventory method on January
1, 2011. In applying the LIFO method, Bond uses internal cost indexes and
the multiple-pools approach. The following data were available for Inventory
Pool No. 3 for the two years following the adoption of LIFO: Under the
dollar-value LIFO method the inventory at December 31, 2012, should be
A. 357600
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:
C. higher, lower
Company C is identical to Company D in every respect except that Company
C uses LIFO and Company D uses average costs. In an extended period of
rising inventory costs, Company C's gross profit and inventory turnover ratio,
compared to Company D's, would be:
D. lower, higher
Cost of goods sold is given by
D. Net purchases + beginning inventory - ending inventory
Compared to dollar-value LIFO, unit LIFO is
C. More costly to implement
During 2011, WW Inc. reduced its LIFO eligible inventory quantities due to a
problem with its major supplier. The effect of this liquidation was to increase
its cost of goods sold by approximately $50 million. WW has a 40% income
tax rate. If WW had not experienced these supplier problems and the
resulting liquidation,
D. Net income would have been 30 million higher with purchases prices
DECLINING
Dollar value LIFO
A. Starts with ending inventory measured at current costs and recreates
LIFO layers for measuring inventory costs
During periods when costs are rising and inventory quantities are stable, cost
of goods sold will be
C. Lower under average cost than LIFO
During periods when costs are rising and inventory qualities are stable,
ending inventory will be
D. Higher under FIFO than LIFO
Ending inventory is equal to the cost of items on hand plus
C. Items in transit sold fob destination
Fulbright Corp. uses the periodic inventory system. During its first year of
operations, Fulbright made the following purchases (listed in chronological
order of acquisition) Ending inventory using the average cost method
(rounded) is:
C. 707
Fulbright Corp ending inventory using the FIFO method is
D. 600
Fulbright Corp ending inventory using the LIFO method is
B. 1000
GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the
end of 2011 would have been $15 million higher than the difference between
LIFO and FIFO at the end of 2010. Assuming GG has a 40% income tax rate:
C. reported Net Income 9 million higher using FIFO rather than LIFO
HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory
at the end of 2011 would have been $20 million lower than the difference
between LIFO and FIFO at the end of 2010. Assuming HH has a 30% income
tax rate:
D. CGS 20 million higher if used FIFO rather than LIFO
Herb's Chemicals ending inventory assuming LIFO in a periodic inventory
system would be:
A. 5040
Herb's Chemical ending inventory assuming LIFO in a perpetual inventory
system would be
B. 5060
Herb's Chemical ending inventory assuming FIFO is
A. 5140
Herb's Chemical ending inventory under a periodic inventory system
assuming average cost is
A. 5087
If a company uses LIFO, a LIFO liquidation is problematic for a company's
income taxes
A. When inventory purchase costs are rising
Inventory does not include
C. Equipment used in the manufacturing of assets for sale
In a perpetual average cost system
A. A new weighted-average unit cost is calculated each time additional units
are purchased
In a period when costs are rising and inventory quantities are stable, the
inventory method that would result in the highest ending inventory
C. FIFO
In periods when costs are rising, LIFO liquidations
D. Distort the net income
In a perpetual inventory system, the cost of purchases is debited to
C. Inventory
In a periodic inventory system, the cost of purchases is debited to
A. Purchases
In a perpetual inventory system, the cost of inventory sold is
C. Debited to cost of goods sold
In a periodic inventory system, the cost of inventories sold is
D. Not recorded at the time of sale
In a period when costs are falling and inventory quantities are stable, the
lowest taxable income would be reported by using the inventory method of
D. FIFO
Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2011, when it
had an inventory of $800,000. Its inventory as of December 31, 2011, was
$811,200 at year-end costs and the cost index was 1.04. What was DVL
inventory on December 31, 2011?
A. 780000
Purchases equal the invoice amount
C. Plus freight-in, less purchase discounts
Suppose that Badger's 2012 ending inventory, valued at year-end costs, was
$143,000 and that the relative cost index for this inventory in 2012 was 1.10.
In determining the inventory balance should Badger report in its 12/31/12
balance sheet:
C. An additional layer of 11000 is added to the 1/1/12 balance
Suppose that Badger's 2013 ending inventory, valued at year-end costs, was
153600 and that the relative cost index for this inventory in 2013 was 1.20.
What inventory balance would Badger report on its 12/31/13 balance sheet?
B. 129800
Ramen Inc adopted dollar-value LIFO as of Jan 1, 2011, when it had a cost
inventory of 600000. Its inventory as of Dec 31,2011 was 667800 at year-end
costs and the cost index was 1.06. What was DVL inventory on Dec 31,2011?
B. 631800
The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system
as in a perpetual inventory system would be
A. FIFO
The LIFO Conformity Rule states that if LIFO is used for
B. Tax purposes, it must be used for financial reporting
Thompson's 2011 gross profit ratio is:
C. 20%
Thompson's 2011 inventory turnover ratio is
B. 4.00
The largest expense on a retailer's income statement is typically
B. Cost of goods sold
The use of LIFO during a long inflationary period can result in
C. Significant cash flow advantages over FIFO
The Mateo Corporation's inventory at December 31, 2011, was $325,000 based on a physical count priced at cost, and
before any necessary adjustment for the following:
C. 405000
Texas Petrochemical ending inventory assuming LIFO and a periodic
inventory system is
D. 1470
Tiger Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory
value was $360,000 and the cost index was 1.25. On December 31, 2011, the
inventory was valued at year-end cost of $395,000 and the cost index was
1.30. Tiger would report a LIFO inventory of:
D. 380600
Texas Petrochemical ending inventory assuming LIFO and a perpetual
inventory system is
A. 1545
The use of LIFO in accounting for a firm's inventory
C. Usually provides a better match of expense with revenues
Using the gross method, purchase discounts lost are
A. included in purchases
Under the net method, purchase discounts lost are
C. Included interest expense
Under the gross method, purchase discounts taken are
D. Deducted from purchases
Udon Inc. adopted dollar value LIFO as of Jan 1,2011 when it had an
inventory of 700000. Its inventory as of Dec 31, was $777, 000 at year-end
costs and the cost index was 1.05. What was DVL inventory on December 31,
2011?
C. 742000
What is ending inventory assuming Northwest uses the gross method to
record purchases?
B. 112550
What is cost of goods available for sale, assuming CBC uses the gross
method?
C. 331480
What is Nu's net income if it elects FIFO?
B. 288
What is Nu's net income if it elects LIFO?
B. 144
What is Nu's gross profit ratio if it elects LIFO?
C. 40%
What is Nueva's gross profit ratio if it elects FIFO?
B. 32%
What is Nueva's net income if it elects FIFO
D. 372
What is Nueva's net income if it elects LIFO
B. 262
The primary reason for the popularity of LIFO is that it
B. Saves income taxes currently
When reported in financial statements, a LIFO allowance account usually
B. Is added to LIFO cost to indicate what the inventory would cost on a FIFO
basis
When reported in financial statements, a LIFO allowance account usually
B. Is added to LIFO cost to indicate what the inventory would cost on a FIFO
basis
Robertson Corporation's inventory balance was 22000 at the beginning of
the year and 20000 at the end. The inventory turnover ratio for the year was
6.0 and the gross profit ratio 40%. What were net sales for the year?
D. 21000
What inventory balance should Badger report on its 12/31/11 balance sheet?
B. 121000