JME had beginning inventory of $200 and ending inventory of $300. JME had COGS of $800. JME must have purchased inventory amounting to:

A) $700.

B) $900.

C) $1,100.

JME purchased 400 units of inventory that cost $4.00 each. Later the firm purchased an additional 500 units that cost $5.00 each. JME sold 700 units of inventory for $7.00 each. If JME uses a first in, first out (FIFO) cost flow method, the amount of gross profit appearing on the income statement is:

A) $2,400.

B) $3,100.

C) $1,800.

Which of the following inventory accounting methods must be used for financial reporting purposes if a U.S. firm uses last in, first out (LIFO) for tax purposes?

A) LIFO.

B) The firm may use any of the above methods.

C) FIFO.

While attending a local college, music major Anjolie Webster accepts a temporary position with a small manufacturing firm. Currently, the firm uses LIFO to account for inventory, but the owner is “just curious” about how the financial results would look if the company used FIFO. Before the owner leaves for her voice lesson, she hands Webster a photocopy of the inventory data for the current period (summarized below).

• Beginning inventory of 1,000 units at $30 cost.
• Ending inventory of 800 units.
• Sales of 1,100 units.
• Three inventory purchases (listed from earliest purchase to latest purchase): 400 units at $27 each, 300 units at $25 each, and an unreadable number of units at $22 each. (Unfortunately, when the owner copied the original document, she left a yellow sticky note covering some of the inventory information.)
• Current assets (less inventory) of $75,000.
• Current liabilities of $65,000.

Using the information provided, determine which of the following statements is least accurate? All else equal, compared to LIFO, using FIFO would result in:

A) a lower ending inventory balance.

B) a lower gross margin.

C) a current ratio of approximately 1.60.

An analyst notes the following about a company:

• Beginning inventory was reported as $5,000.
• Costs of goods sold were reported as $8,000.
• Ending inventory is $7,000 (the analyst has physically verified this amount).

Which of the following statements is most accurate?

A) If the analyst discovered that beginning inventory was understated by $2,000, then earnings before taxes must have been overstated by $2,000.

B) If the analyst discovered that beginning inventory was overstated by $1,000, then cost of goods sold must have been understated by $1,000.

C) Purchases must have been $6,000.

	Units	Unit Price
Beginning Inventory	709	$2.00
Purchases	556	$6.00
Sales	959	$13.00
SGA Expenses	$2,649 per annum

What is the cost of goods sold using the weighted average method?

A) $3,423.82.

B) $3,604.02.

C) $2,918.00.

A) $8,325.00.

B) $2,772.10.

C) $2,918.00.

A) $4,142.00.

B) $1,744.20.

C) $1,836.00.

Purchases	Sales
20 units at $50	15 units at $60
35 units at $40	35 units at $45
85 units at $30	85 units at $35

Assume beginning inventory was zero.

Inventory value at the end of the period using the average cost method is:

A) $177.

B) $4,680.

C) $1,540.

A) $1,200.

B) $150.

C) $175.

A) $1,200.

B) $2,400.

C) $250.

A firm uses the last in, first out (LIFO) accounting method and posts $100,000 as ending inventory. Last year's financial statements show inventory at $110,000. This period's income statement shows costs of goods sold at $90,000 with a LIFO reserve of $30,000. How much inventory was purchased this period, and what would the ending inventory balance be under first in, first out (FIFO)?

       Inventory purchases    Ending inventory (FIFO)

A) $80,000    $130,000

B) $90,000    $130,000

C) $80,000    $70,000

The Mountain Bike Supply Company had 500 units in its beginning inventory. Each of these units cost $5. During the period, Mountain Bike Supply first purchased 400 units at $6 each and then 200 units at $7 each. At the end of the period, Mountain Bike Supply had 600 units. What is the cost of goods sold and inventory for Mountain Bike Supply if it uses FIFO inventory valuation?

COGS

Inventory

A) $2,500 $3,100

B) $3,200 $3,100

C) $2,500 $3,800

A company's beginning inventory was overstated by $3,000, now ending inventory is understated by $2,000. If purchases were properly reported, then earnings before taxes will be:

A) overstated by $1,000.

B) overstated by $5,000.

C) understated by $5,000.

Which of the following is least likely part of the basic inventory equation?

A) Beginning inventory + purchases = ending inventory + cost of goods sold.

B) Beginning inventory ? ending inventory ? cost of goods sold = purchases.

C) Purchases ? ending inventory + beginning inventory = cost of goods sold.

In 2004, Torrence Co. had a beginning inventory of $19,924 and made purchases of $15,923. If the ending inventory level was $19,204, what was the cost of goods sold (COGS) for year 2004?

A) $16,643.

B) $15,203.

C) $15,923.

Given the following inventory data about a firm:

• Beginning inventory 20 units at $50/unit
• Purchased 10 units at $45/unit
• Purchased 35 units at $55/unit
• Purchased 20 units at $65/unit
• Sold 60 units at $80/unit

What is the inventory value at the end of the period using LIFO?

A) $1,575.

B) $3,450.

C) $1,225.

Given the following inventory data about a firm:

• Beginning inventory 20 units at $50/unit
• Purchased 10 units at $45/unit
• Purchased 35 units at $55/unit
• Purchased 20 units at $65/unit
• Sold 60 units at $80/unit

What is the inventory value at the end of the period using LIFO?

A) $1,575.

B) $3,450.

C) $1,225.

Given the following inventory data about a firm:

• Beginning inventory 20 units at $50/unit
• Purchased 10 units at $45/unit
• Purchased 35 units at $55/unit
• Purchased 20 units at $65/unit
• Sold 60 units at $80/unit

What is the inventory value at the end of the period using first in, first out (FIFO)?

A) $1,575.

B) $3,475.

C) $3,100.

	Units	Unit Price
Beginning Inventory	699	$5.00
Purchases	710	$8.00
Sales	806	$15.00
SGA Expenses	$3,141 per annum

Determine the cost of goods sold using the weighted average method and also using the first in, first out (FIFO) method.

Weighted Average

FIFO

A) $4,986.02 $4,133.45

B) $4,351.00 $5,248.44

C) $5,248.44 $4,351.00

A) $4,824.00.

B) $6,160.00.

C) $4,582.80.

	Units	Unit Price
Beginning Inventory	709	$2.00
Purchases	556	$6.00
Sales	959	$13.00
SGA Expenses	$2,649 per annum

What is the cost of goods sold using the average cost method and using the first in first out (FIFO) method?

Average Cost

FIFO

A) $3,604.02 $2,918.00

B) $4,142.02 $2,918.00

C) $3,604.02 $3,423.82

A) $1,836.00.

B) $1,744.20.

C) $3,604.02.

An analyst provided the following information about a company:

• Purchases throughout the year         $55,000

• COGS                                            $60,000

•  Ending inventory                             $35,000

The beginning inventory was:

A) $45,000.

B) $40,000.

C) $55,000.

Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows:

	Units	Unit Cost	Total Cost
Beginning Inventory	20	$10,000	$200,000
Purchases, April	10	12,000	120,000
Purchases, July	10	12,500	125,000
Purchases, October	20	15,000	300,000

In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers?

A) $485,000.

B) $434,583.

C) $382,500.

Which inventory method will provide a larger net income during periods of falling prices?

A) Specific Items.

B) LIFO.

C) FIFO.

Which of the following is least likely to be a result of using last in, first out (LIFO) as the inventory method during periods of decreasing prices compared to using first in, first out (FIFO)?

A) Higher taxes.

B) Lower COGS.

C) Higher cash flows.

If all else holds constant in periods of rising prices and inventory levels:

A) FIFO firms have higher debt to equity ratios than LIFO firms do.

B) FIFO firms will have greater stockholder's equity than LIFO firms do.

C) LIFO firms have higher gross profit margins than FIFO firms do.

Jefferson Corp. decided to change its inventory valuation method from first in, first out (FIFO) to last in, first out (LIFO) in a period of rising prices. What was the result of the change for the ending inventory and net income?

Ending Inventory

Net Income

A) Increases Increases

B) Decreases Decreases

C) Decreases Increases

Which of the following statements is least accurate?

A) In a period of rising prices, LIFO gives the best COGS, whereas FIFO gives the best inventory balance on the balance sheet.

B) LIFO produces a tax benefit in a period of rising prices, therefore results in higher cash flows than FIFO.

C) In a period of rising prices, FIFO gives the best COGS, whereas LIFO gives the best inventory balance on the balance sheet.

Which accounting methods are preferable for income statements and balance sheets?

A) Last in, first out (LIFO) for income statements and first in, first out (FIFO) for the balance sheet.

B) Last in, first out (LIFO) for the balance sheet and first in, first out (FIFO) for the income statement.

C) First in, first out (FIFO) for both income statements and balance sheets.

Assuming inventory levels remain constant during the year and prices have been stable over time, COGS would be:

A) higher under LIFO than FIFO or average cost.

B) higher under the average cost than LIFO or FIFO.

C) the same for both LIFO and FIFO.

During inflationary periods, which of the following statements is TRUE?

A) LIFO will generate higher earnings, but lower after tax cash flows.

B) FIFO will generate higher earnings, but lower after tax cash flows.

C) LIFO will generate lower earnings, but lower after tax cash flows.

Which is the preferred inventory method for purposes of analysis and which is the preferred method for reporting cost of goods sold?

Inventory Analysis

COGS

A) LIFO FIFO

B) FIFO LIFO

C) LIFO LIFO

During periods of rising prices and stable or growing inventories, the most informative inventory accounting method for income statement purposes is:

A) LIFO because it allocates current prices to cost of good sold (COGS) and provides a better measure of current income.

B) weighted average because it allocates average prices to cost of good sold (COGS) and provides a better measure of current income.

C) FIFO because it allocates historical prices to cost of good sold (COGS) and provides a better measure of current income.

For balance sheet purposes, inventories based on:

A) LIFO are preferable to those based on FIFO, as they more closely reflect the current costs.

B) LIFO are preferable to those based on average cost, as they more closely reflect the current costs.

C) FIFO are preferable to those based on LIFO, as they more closely reflect current costs.

Which of the following statements about inventory accounting is least accurate?

A) During periods of rising prices, first in, first out (FIFO) based current ratios will be smaller than last in, first out (LIFO) based current ratios.

B) If a U.S. firm uses last in, first out (LIFO) for tax reporting it must use LIFO for financial reporting.

C) During periods of rising prices, last in, first out (LIFO) income will be lower than under first in, first out (FIFO) but cash flows will be higher.

Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory:

• Depreciation: straight-line; double-declining balance (DDB)
• Inventory: first in, first out (FIFO); last in, first out (LIFO)

Assuming a deflationary environment (prices are falling), which of the following combinations will result in the highest net income in year 1?

A) Straight-line; LIFO.

B) DDB; FIFO.

C) Straight-line; FIFO.