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Exam 8: Inventories: Measurement

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Question 41

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In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

A) Weighted average.
B) Moving average.
C) FIFO.
D) LIFO.

E) None of the above
F) A) and B)

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Question 42

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The LIFO Conformity Rule states that if LIFO is used for:

A) One class of inventory, it must be used for all classes of inventory.
B) Tax purposes, it must be used for financial reporting.
C) One company in an affiliated group, it must be used by all companies in an affiliated group.
D) Domestic companies, it must be used by foreign partners.

E) A) and D)
F) All of the above

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Question 43

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Patty's Pet Store purchased merchandise on October 10, 2013, at a price of $35,000, subject to credit terms of 2/10, n/30. Patty's uses the gross method for recording purchases and uses perpetual inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the payment of one-half the invoice amount on October 18, 2013. 3. Prepare the journal entry to record the payment of the balance of the amount due on November 8, 2013.

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

Appleton Inc. adopted dollar-value LIFO on January 1, 2013, when the inventory value was $1,200,000. The December 31, 2013, ending inventory at year-end costs was $1,430,000 and the cost index for the year is 1.1. Required: Compute the dollar-value LIFO inventory valuation for the December 31, 2013, inventory.

Suppose that Badger's 2014 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2014 was 1.10. In determining the inventory balance should Badger report in its 12/31/14 balance sheet:

Boston Dollar Store uses the gross method to record purchase discounts and uses a perpetual inventory system. Boston engaged in the following transactions during April: Required: Prepare journal entries to record the above transactions.

What is Nu's net income if it elects LIFO?

The table below contains selected financial information from recent financial statements of KBI Toys and Little Tikes Adventure Toys, Inc., two toy manufacturing companies ($ in thousands): Required: Calculate the 2013 gross profit ratio, inventory turnover ratio, and the average days in inventory for the two companies (rounded).

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

Using the gross method, purchase discounts lost are:

What is Nueva's gross profit ratio (rounded) if it elects FIFO?

Briefly explain when there would be a tax benefit from electing LIFO rather than FIFO.

The largest expense on a retailer's income statement is typically:

Physical counts of inventory are never done with perpetual inventory systems.

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses FIFO.

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.

What is Nu's gross profit ratio if it elects LIFO?

Thompson's 2013 gross profit ratio is:

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.