28) Mighty Ducks, Inc.’s inventory activity in October 2011 was as follows:
Inventory, October 1
11 units @ $8 each
Purchase, October 12
22 units @ $11 each
Sale, October 25
23 units @ $24 each
Which of the following shows the correct effect on the accounting equation of the October 25
sale on account using the perpetual WEIGHTED AVERAGE COST method of accounting for
inventory?
A)
Assets
Liabilities
Shareholders’ equity
(230) Inventory
552 Accounts payable
552 Sales
(230) Cost of goods
sold
B)
Assets
Liabilities
Shareholders’ equity
552 Accounts
receivable
(250) Inventory
No effect
552 Sales
(250) Cost of goods
sold
C)
Assets
Liabilities
Shareholders’ equity
552 Accounts
receivable
(230) Inventory
No effect
552 Sales
(230) Cost of goods
sold
D)
Assets
Liabilities
Shareholders’ equity
(230) Inventory
552 Accounts payable
552 Sales
(230) Cost of goods
sold
29) IFRS require publicly-traded corporations to use ________.
A) the periodic inventory system
B) the perpetual inventory system
C) either the periodic or perpetual inventory system
D) the last-in, first-out system
30) A company that uses the first-in, first-out method of valuing cost of goods sold must sell its
older inventory before selling any of its newer inventory, even though some of the newer items
may be more accessible.
31) FIFO is the cost flow method that attaches the costs of the first-in units to the units in ending
inventory.
32) LIFO is the cost flow method that attaches the last-in costs to the units sold.
33) GAAP allow different cost flow methods to be used when accounting for inventory.
34) IFRS do not allow the LIFO cost flow method to be used when accounting for inventory.
35) In a period of rising inventory costs, the LIFO method would result in the highest net
income.
36) In a period of rising inventory costs, the LIFO method would result in the highest cash flow
from operations.
37) Assume that Tango Company had a beginning inventory of 100 units at a cost of $2.00 per
unit. Current period purchases were 400 units at a cost of $4.00 per unit. The weighted average
cost of each unit is $3.
38) In a time of rising prices, the main reason a company would choose to use LIFO is to save on
income taxes.
39) In a time of rising prices, the main reason a company would choose to use FIFO is to save on
income taxes.
40) The cost flow method a firm uses is disclosed in the notes to the financial statements.
41) A company must use the inventory cost flow assumption that most closely resembles the
actual physical flow of goods.
42) In times of rising prices, a company that uses LIFO will report a higher Accounts payable
balance than if it had used FIFO.
43) In times of rising prices, a company that uses LIFO will report higher sales than if it had used
FIFO.
44) Compare and contrast FIFO, LIFO, and the weighted-average cost flow methods.
45) The following information is from the accounting records of JackCo:
Unit Cost
Total Cost
Beginning inventory
$2.50
$500
Purchases
$2.70
$2,700
Sales
Required:
1. Determine the cost of goods sold assuming JackCo uses the first-in, first-out (FIFO) inventory
method.
2. Determine the cost of goods sold assuming JackCo uses the last-in, first-out (LIFO) inventory
method.
3. Which inventory method results in LOWER taxable income for the period? Why?
46) What are the advantages and disadvantages of using LIFO as a cost flow method?
47) Inventory data for Daisy Cutters, Inc., are provided below. Sales for the month were 500
units sold for $30 each. The company maintains a periodic inventory system.
Date
Number of Units
Unit
Cost
Total Cost
May 1
Beginning inventory
100
$14.85
$1,485.00
May 3
Purchase
150
$15.23
$2,284.50
May 19
Purchases
200
$16.00
$3,200.00
May 28
Purchases
175
$16.20
$2,835.00
Required:
1. Determine the gross profit for the month assuming the company uses the FIFO cost flow
method.
2. Determine the gross profit for the month assuming the company uses the LIFO cost flow
method.
3. Which method results in a higher cost of goods sold? Explain why.
48) On June 1, Treble Clef, Inc. had one piano in inventory. During June, five additional pianos
were purchased—two on June 8, two on June 12, and one on June 25. The company sold three of
the pianos on June 13, another one on June 19, and one more on June 28.
Part A: Using the LIFO perpetual cost flow method, put the number of pianos in the appropriate
column(s) to show:
June 1
Inventory
June 8
Purchase
June 12
Purchase
June 25
Purchase
1
Which 3 pianos were recorded as
cost of goods sold on June 13?
2
Which one was recorded as cost of
goods sold on June 19?
3
Which one was recorded as cost of
goods sold on June 28?
4
Which piano will be included in
Starnes’ inventory cost calculation
at the end of June?
Part B: Using the FIFO perpetual cost flow method, put the number of pianos in the appropriate
column(s) to show:
June 1
Inventory
June 8
Purchase
June 12
Purchase
June 25
Purchase
1
Which 3 pianos were recorded as
cost of goods sold on June 13?
2
Which one was recorded as cost of
goods sold on June 19?
3
Which one was recorded as cost of
goods sold on June 28?
4
Which piano will be included in
Starnes’ inventory cost calculation at
the end at June 30?
49) On May 1, Starnes TV had two TV sets in inventory. During May, six additional TV sets
were purchased—two on May 10, one on May 16, and three on May 24. The company sold two
of the TV sets on May 13, another one on May 18, and two more on May 27.
Part A: Using the FIFO perpetual cost flow method, fill in the number of TV sets in the
appropriate column:
May 1
Inventory
May 10
Purchase
May 16
Purchase
May 24
Purchase
1
Which two TV sets were recorded as
cost of goods sold on May 13?
2
Which one was recorded as cost of
goods sold on May 18?
3
Which two TV sets were recorded as
cost of goods sold on May 27?
4
Which three TV sets will be included
in Starnes’ inventory cost calculation
at the end of May?
Part B: Using the LIFO perpetual cost flow method, fill in the number of TV sets in the
appropriate column:
May 1
Inventory
May 10
Purchase
May 16
Purchase
May 24
Purchase
1
Which two TV sets were recorded as
cost of goods sold on May 13?
2
Which one was recorded as cost of
goods sold on May 18?
3
Which two TV sets were recorded as
cost of goods sold on May 27?
4
Which three TV sets will be included
in Starnes’ inventory cost calculation
at the end of May?
50) Inventory data for Army & Navy Wear Co. are provided below. Sales for the month were
220 units sold for $12 each. The company maintains a periodic inventory system.
Date
Number of
Units
Unit
Cost
Total Cost
Jan. 01
Beginning
inventory
50
$5.00
$ 250
Jan. 15
Purchases
70
$6.00
$ 420
Jan. 20
Purchases
80
$7.00
$ 560
Jan. 27
Purchases
100
$7.50
$ 750
Totals
300
$1,980
Required:
1. Determine the cost of goods sold and ending inventory for the month assuming the company
uses the FIFO cost flow method.
2. Determine the cost of goods sold and ending inventory for the month assuming the company
uses the LIFO cost flow method.
3. Determine the cost of goods sold and ending inventory for the month assuming the company
uses the weighted average method.
4. Which method would you recommend that the company use if its objective is to minimize its
income tax liability?
Answer:
51) Inventory data for Army & Navy Wear Co. are provided below. Sales for the quarter were
220 units sold for $12 each.
Date
Number of Units
Unit Cost
Total
Cost
Jan. 01
Beginning inventory
150
$5.00
$ 750
Jan. 15
Purchase
70
$6.00
$ 420
Feb. 01
Sale
100
Feb. 20
Purchase
180
$7.00
$1,260
March 05
Sale
120
March 19
Purchase
50
$7.50
$ 375
Required:
1. Calculate the cost of goods sold for the quarter assuming the company uses a FIFO perpetual
inventory system.
2. Calculate the cost of goods sold for the quarter assuming the company uses a LIFO perpetual
inventory system.
3. Which system (perpetual or periodic) do you think is increasing in use because of computer
technology?
Answer:
52) The Quiet Gravestone Company has only one product: a large, 3-foot gravestone. Data for
inventory during February of the current year are provided below. Assume the company uses a
perpetual inventory system and the FIFO cost flow method.
Date
Number of Units
Unit Cost
Total Cost
Feb 01
Beginning
inventory
5
$40.00
$200
Feb 04
Purchase
10
$42.00
$420
Feb 10
Purchase
12
$44.00
$528
Feb 18
Purchase
8
$45.00
$360
Feb 25
Purchase
14
$46.00
$644
Sales for the month were:
February 7: seven sold at $1,000
February 15: five sold at $1,050
February 20: ten sold at $1,100
Required:
1. What is the cost of goods sold for the February 7 sale?
2. What is the cost of goods sold for the February 15 sale?
3. What is the cost of goods sold for the February 20 sale?
4. If the company used a periodic inventory system and the FIFO cost flow method, what would
cost of goods sold be for the month?
Answer:
53) The Cemetery Gravestone Company has only one product: a large, 3-foot gravestone. Data
for inventory during February of the current year are provided below. Assume the company uses
a PERPETUAL inventory system and the LIFO cost flow method.
Date
Number of
Units
Unit
Cost
Total Cost
Feb 01
Beginning
inventory
5
$40.00
$200
Feb 04
Purchase
10
$42.00
$420
Feb 10
Purchase
12
$44.00
$528
Feb 18
Purchase
8
$45.00
$360
Feb 25
Purchase
14
$46.00
$644
Sales for the month were:
February 7: seven sold at $1,000
February 15: five sold at $1,050
February 20: ten sold at $1,100
Required:
1. What is the cost of goods sold for the February 7 sale?
2. What is the cost of goods sold for the February 15 sale?
3. What is the cost of goods sold for the February 20 sale?
4. If the company used a PERIODIC inventory system and the LIFO cost flow method, what
would the cost of goods sold be for the month?
Answer:
54) Merits, Inc.’s inventory activity in June was as follows:
Beginning inventory, June 1
400 units @ $10 each
Purchase on account June 12
600 units @ $11 each
Sale on account June 14
700 units @ $15 each
Part A: CHOOSE THE COLUMN that represents the June financial statement where the line
item will appear and FILL IN THE DOLLAR AMOUNT using the LIFO inventory method.
Income Statement
Statement of Cash Flows
Balance Sheet
1. Cost of goods sold
2. Inventory
3. Sales
4. Gross profit
Part B: CHOOSE THE COLUMN that represents the June financial statement where the line
item will appear and FILL IN THE DOLLAR AMOUNT using the FIFO inventory method.
Income Statement
Statement of Cash Flows
Balance Sheet
1. Cost of goods sold
2. Inventory
3. Sales
4. Gross profit
55) FILLO, Inc.’s inventory activity in May was:
Statement of Cash Flows
Balance Sheet
3. Sales
4. Gross profit
Part B:
Statement of Cash Flows
Balance Sheet
3. Sales
4. Gross profit
Inventory, May 1
10 units @ $7 each
Purchase on account, May 7
30 units @ $6 each
Sale on account, May 18
12 units @ $12 each
Purchase on account, May 24
15 units @ $5 each
Part A: CHOOSE THE COLUMN that represents the end of May financial statement where
the line item will appear and FILL IN THE DOLLAR AMOUNT using the LIFO
PERPETUAL method.
Income
Statement
Statement of Cash
Flows
Balance Sheet
1. Cost of goods sold
2. Inventory
3. Sales
4. Gross profit
Part B: CHOOSE THE COLUMN that represents the end of May statement where the line
item will appear and FILL IN THE DOLLAR AMOUNT using the FIFO PERPETUAL
method.
Income
Statement
Statement of Cash
Flows
Balance Sheet
1. Cost of goods sold
2. Inventory
3. Sales
4. Gross profit
Part C: Select which method is correct by choosing LIFO, FIFO, or Same, if both methods give
the same result.
Which method results in the:
LIFO
FIFO
Same
1.
higher net income?
2.
lower taxes?
3.
lower current taxes?
4.
lower Accounts receivable on the Balance
Sheet?
5.
higher Accounts payable on the Balance
Sheet?
56) Buy & Large, Inc.’s inventory activity in May was:
Inventory, May 1
10 units @ $60 each
Purchase on account, May 7
30 units @ $70 each
Sale on account, May 18
12 units @ $120 each
Required:
1. What is the cost of goods sold for the May 18 sale using the weighted average (WA) cost flow
method?
2. What is the cost of goods sold for the May 18 sale using FIFO cost flow method?
3. Select which method is correct by choosing WA or FIFO, or Same, if both methods give the
same result.
Which method results in the:
WA
FIFO
Same
a.
higher gross profit?
b.
higher Inventory on the Balance Sheet?
c.
higher current assets?
d.
higher Accounts payable on the Balance
Sheet?
WA
FIFO
Same
a.
higher gross profit?
b.
higher Inventory on the Balance Sheet?
c.
higher current assets?
d.
higher Accounts payable on the Balance
Sheet?
57) Buy & Large, Inc.’s inventory activity in October was:
Inventory, October 1
11 units @ $8 each
Purchase, October 12
22 units @ $11
each
Sale, October 25
25 units @ $25
each
Show the correct effect on the accounting equation of the October 25th sale of 25 units on
account using the perpetual FIFO method of accounting for inventory.
Assets
Liabilities
Shareholders’ equity
Liabilities
Shareholders’ equity
(242) Inventory
58) Buy & Large, Inc.’s inventory activity in October was:
Inventory, October 1
11 units @ $8 each
Purchase, October 12
22 units @ $11
each
Sale, October 25
25 units @ $25
each
Show the correct effect on the accounting equation of the October 25th sale on account using the
perpetual WEIGHTED AVERAGE COST method of accounting for inventory.
Assets
Liabilities
Shareholders’ equity
59) Buy & Large, Inc.’s inventory activity in October was:
Inventory, October 1
11 units @ $8 each
Purchase, October 12
22 units @ $11 each
Sale, October 25
25 units @ $25 each
Show the correct effect on the accounting equation of the October 25th sale on account using the
perpetual LIFO method of accounting for inventory.
Assets
Liabilities
Shareholders’ equity
Assets
Liabilities
Shareholders’ equity
Assets
Liabilities
Shareholders’ equity
(250) Inventory
60) Buy & Large, Inc.’s inventory activity in May was:
Inventory, May 1
100 units @ $7 each
Purchase on account, May 7
300 units @ $6 each
Sale on account, May 18
120 units @ $12 each
Required:
1. What is the cost of goods sold for the May 18 sale using the weighted average (WA) cost flow
method?
2. What is the cost of goods sold for the May 18 sale using the FIFO cost flow method?
3. Select which method is correct by choosing WA or FIFO, or Same, if both methods give the
same result.
Which method results in the:
WA
FIFO
Same
a.
higher net income?
b.
lower current assets?
c.
lower Accounts receivable on the Balance
Sheet?
d.
higher Accounts payable on the Balance
Sheet?
WA
FIFO
Same
a.
higher net income?
b.
lower current assets?
c.
lower Accounts receivable on the Balance
Sheet?
d.
higher Accounts payable on the Balance
Sheet?