Exam 5: Accounting for Inventories

In an inflationary period,which cost flow method,LIFO or FIFO,results in the larger dollar amount of assets on the balance sheet?

If a company overstates its Inventory balance at the end of 2015 due to an error,its Retained Earnings will also be overstated on the 2015 balance sheet.

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

In an inflationary environment,

Tetra Company purchased 2,000 units of inventory that cost $4.00 each on January 1,2016.An additional 3,000 units of inventory were purchased on January 12,2016 at a cost of $4.20 each.Tetra Company sold 4,000 units of inventory on January 20,2016.Which of the following entries would be required to recognize the cost of goods sold assuming that Tetra Co.uses the perpetual inventory method and a FIFO cost flow method?

The last-in,first-out cost flow method assigns the cost of the items purchased first to ending inventory.

When preparing its quarterly financial statements,Pace Co.uses the gross margin method to estimate ending inventory.The following information is available for the 1st quarter of 2016: What was Pace's estimated inventory on March 31,2016?

The gross margin method of estimating inventory is not useful in detecting inventory fraud.

Use the following information for questions The inventory records for Radford Co.reflected the following -Determine the amount of ending inventory assuming the FIFO cost flow method.

Explain the computation of and the significance of inventory turnover.

The Bradford Company was recently required to record an inventory write-down of $5,200 because the market value of its inventory was less than cost.Assuming the amount of the write-down is not material (the total inventory was over $9,750,000),which of the following is the appropriate journal entry?

In an inflationary period,which cost flow method of accounting for inventory will produce the smallest amount of net income?

Stan's Surf Shack uses the FIFO inventory cost flow method.When its income tax is paid,what is the effect of the entry on the financial statements? Note that no tax liability had been accrued.

Generally accepted accounting principles restrict or limit a company's freedom to change accounting methods from one year to the next.

Indicate whether each of the following statements is true or false. _____ a)To compute cost of goods sold under the weighted average method,it is necessary to first compute the weighted-average cost per unit. _____ b)The weighted average cost per unit is computed by dividing the total cost of goods purchased by the number of units sold. _____ c)Under the FIFO method,each time units are sold the unit cost of the oldest inventory is applied to the number of units sold. _____ d)Under a perpetual inventory system,it is not possible to use the LIFO method of cost flow. _____ e)A U.S.company can use LIFO for income tax purposes only if it also uses LIFO for financial reporting purposes.

During a period of rising prices the LIFO cost flow method will result in higher total assets than FIFO.

If a firm is using the lower-of-cost-or-market rule and if a write-down entry is required,which of the following effects will apply?

When the cost of purchasing inventory is declining,which inventory cost flow method will produce the highest amount of cost of goods sold?

If a company uses the FIFO cost flow method for its income tax return it must also use FIFO for financial reporting.

In a world with inflation,but no income tax,how does the choice between LIFO and FIFO affect a company's cash flows? Would the presence of an income tax system cause a difference in the amount of cash outflow when using FIFO versus LIFO?