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Exam 5: Accounting for Inventories

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Question 1

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During a period of rising inventory prices,a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.

A) True
B) False

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Question 2

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When prices are rising,which method of inventory,if any,will result in the lowest relative net cash outflow (including the effects of taxes,if any) ?

A) LIFO
B) FIFO
C) Weighted average
D) None of these; the choice of inventory methods does not affect cash flows.

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

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Question 3

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The specific identification inventory method is not practical for companies that sell many low-priced,high turnover items.

[The following information applies to the questions displayed below.] The inventory records for Radford Co. reflected the following: $\begin{array}{|c|c|}\hline \text { Beginning inventory@May } 1 & \text { I00units@\$4.00 } \\\hline \text { Firstpurchase@May } 7 & 300 \text { units@\$4.40 } \\\hline \text { Second purchase@.May } 17 & \text { 500units@\$4.60 } \\\hline \text { Third purchase@May 23 } & 100 \text { units@\$4.80 } \\\hline \text { Sales@May } 31 & 900 \text { units@\$7.80 } \\\hline\end{array}$ -If the company uses the weighted-average inventory cost flow method,what is the average cost per unit (rounded) for May?

If prices are rising,which inventory cost flow method will produce the lowest amount of cost of goods sold?

[The following information applies to the questions displayed below.] Singleton Company's perpetual inventory records included the following information: -If Singleton uses the LIFO cost flow method,its ending inventory would be $1,260.

Which of the following businesses is most likely to use a specific identification cost flow method?

Hoover Company purchased two identical inventory items.The item purchased first cost $33.00.The item purchased second cost $35.00.Then Hoover sold one of the inventory items for $62.00.Based on this information,which of the following statements is true?

[The following information applies to the questions displayed below.] Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following information: -Assuming Chase uses a FIFO cost flow method,what is the ending inventory on January 31?

On December 31,Year 1,Owings Corporation overstates the ending inventory by $5,000.How will this affect the amount of retained earnings shown on the balance sheet at December 31,Year 2?

Generally accepted accounting principles do not allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

Zinke Company understated its ending inventory at the end of Year 1.Which of the following correctly states the effect of the error on the amounts shown on the Year 1 financial statements?

International Financial Reporting Standards (IFRS)do not permit the use of the LIFO inventory cost flow method.

[The following information applies to the questions displayed below.] Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: $\begin{array}{cccc}\text { Purchase } & \text { No. of Items } & \text { Cost } \\1 & 200 & \$ 9.00 \\2 & 150 & \$ 9.30 \\3 & 50 & \$ 10.50\end{array}$ Glasgow sold 220 units after purchase 3 for $17.00 each. -What is Glasgow's ending inventory under LIFO?

[The following information applies to the questions displayed below.] Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: $\begin{array}{cccc}\text { Purchase } & \text { No. of Items } & \text { Cost } \\1 & 200 & \$ 9.00 \\2 & 150 & \$ 9.30 \\3 & 50 & \$ 10.50\end{array}$ Glasgow sold 220 units after purchase 3 for $17.00 each. -What is Glasgow's ending inventory under weighted-average (rounded) ?

[The following information applies to the questions displayed below.] Singleton Company's perpetual inventory records included the following information: -If Singleton uses the FIFO cost flow method,its cost of goods sold would be $4,490.

West Corporation's Year 1 ending inventory was overstated by $20,000; however,ending inventory for Year 2 was correct.Which of the following statements is correct?

[The following information applies to the questions displayed below.] Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following information: -Assuming Chase uses a FIFO cost flow method,what is the cost of goods sold for the sales transaction on January 31?

What effect will an overstatement of ending inventory at the end of Year 1 have on the amounts reported on the Year 1 financial statements?

[The following information applies to the questions displayed below.] Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following information: -Assuming Chase uses a LIFO cost flow method,what is the amount of cost of goods sold for the sales transaction on January 18?