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Exam 8: Inventories: Measurement

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Question 1

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Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Cost index

A) Method not feasible for most inventories.
B) Most recent purchases will be included in cost of goods sold.
C) The cost of components purchased from other manufacturers.
D) Used to convert ending inventory at year-end cost to base year cost.
E) Could be used instead of an internally generated index in dollar-value LIFO computations.

F) C) and D)
G) C) and E)

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Question 2

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One difference between periodic and perpetual inventory systems is:

A) Cost of goods sold is not recorded under a perpetual system until the end of the period.
B) Cost of goods sold is not recorded under a periodic system until the end of the period.
C) Cost of goods sold is always significantly higher under a perpetual system.
D) Cost of goods sold is always significantly higher under a periodic system.

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

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Question 3

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Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2018, when it had a cost inventory of $600,000. Its inventory as of December 31, 2018, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2018?

Dollar-value LIFO:

Bettencourt Clothing Corporation uses a periodic inventory system and the LIFO cost method. The company began 2018 with the following inventory layers (listed in chronological order of acquisition): 5,000 units @ $10 $50,000 8,000 units @ $12 96,000 Beginning inventory $146,000 During 2018, 20,000 units were purchased for $15 per unit. Sales for the year totaled 30,000 units at various prices, leaving 3,000 units in ending inventory. Required: 1. Calculate cost of goods sold for 2018. 2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2018 financial statements, assuming the amount is material. Assume an income tax rate of 40%.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -LIFO

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:

Which of the following is false regarding the FIFO inventory method?

The Foxworthy Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 40,000 units consisted of the following, listed in chronological order of acquisition: 24,000 units at a cost of $6.00 per unit = $144,000 16,000 units at a cost of $7.00 per unit = 112,000 During 2018, inventory quantity declined by 18,000 units. All units purchased during 2018 cost $8.00 per unit. Required: Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note assuming the amount determined is material.

TNM Inc. uses LIFO and was founded in on January 1, 2017. At the end of 2017, TNM disclosed that the LIFO reserve was $1 million, indicating that the ending inventory balance would have been $1 million higher under FIFO. At the end of 2018, the LIFO reserve decreased to $0.5 million and inventory balances were relatively stable compared to 2017. Which of the following is true regarding TNM's costs?

Hazelton Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2018 with $59,000 in inventory of its only product. The beginning inventory consisted of the following layers: During 2018, 6,000 units were purchased at $8 per unit and during 2019, 7,000 units were purchased at $9 per unit. Sales, in units, were 7,000 and 12,000 during 2018 and 2019, respectively. Required: 1. Calculate cost of goods sold for 2018 and 2019. 2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2018 and 2019.

Listed below are 10 terms, followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Dollar-value LIFO

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.

Nueva Company reported the following pretax data for its first year of operations. - What is Nueva's gross profit ratio (rounded) if it elects FIFO?

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.

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

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Raw materials

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory.

CMN Inc. uses LIFO and has experienced increasing costs since its founding. CMN disclosed that the LIFO reserve (also known as the LIFO allowance) at the end of 2018 was $3 million. The balance sheet showed ending inventory of $17 million at the end of 2018. What would the ending inventory have been if CMN had always used FIFO?

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