Reading 36: Inventories-LOS c 习题精选 2011, different, valuation, methods, center

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 36: Inventories

LOS c: Calculate cost of sales and ending inventory using different inventory valuation methods and explain the impact of the inventory valuation method choice on gross profit.

 

 

Which inventory method will provide the largest net income during periods of falling prices?

A) LIFO.

B) Weighted average cost.

C) FIFO.

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During periods of falling prices last in, first out (LIFO) provides a higher net income than first in, first out (FIFO) or the average cost methods because the items most recently purchased are the ones being sold first and these costs are continually falling increasing net income. Using FIFO during periods of falling prices would cause net income to be lower than LIFO or average cost methods because the first inventory purchased is the first sold but during periods of falling prices this is the most expensive inventory causing net income to be lower.

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If prices are increasing, the weighted average cost method most likely results in inventory values that are higher than the inventory values using:

A) first-in first-out (FIFO).

B) last-in first-out (LIFO).

C) specific identification.

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In a increasing price environment, inventory values reported under LIFO are lower than the values reported under FIFO, and the values that result from weighted average cost are between the LIFO and FIFO values. Thus, the value of inventory using weighted average cost is higher than inventory using LIFO. The value of inventory using specific identification depends on which particular items from inventory are sold, and thus can be higher or lower than the inventory values that result from the other methods.

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In a decreasing price environment, the first-in first-out (FIFO) inventory cost method results in:

A) higher inventory compared to last-in first-out.

B) lower cost of goods sold compared to last-in first-out.

C) lower gross profit compared to last-in first-out.

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If prices are decreasing, FIFO assumes the higher-cost earliest purchases are the first items sold. This results in higher COGS, lower inventory, and lower gross profit compared to LIFO.

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

What is gross profit using the FIFO method and LIFO method?

FIFO

LIFO

A) $6,900 $5,676

B) $6,900 $5,506

C) $6,213 $5,676

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FIFO COGS = (709 units)($2/unit) + (959 ? 709)($6/unit) = $1,418 + $1,500 = $2,918

Sales = (959 units)($13/unit) = $12,467

Gross profit = Sales ? COGS ? Expenses

= 12,467 ? 2,918 ? 2,649 = $6,900

LIFO COGS = (556 units)($6/unit) + (959 ? 556)($2/unit) = $3,336 + $806 = $4,142

Sales = (959 units)($13/unit) = $12,467

Gross profit = Sales ? COGS ? Expenses = 12,467 ? 4,142 ? 2,649 = $5,676

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	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) $3,604.02.

B) $3,423.82.

C) $2,918.00.

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Weighted average = cost of goods available / total units available. COGS = Units sold × weighted average = 959 × 3.7581 = $3,604.02.

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

A) $2,918.00.

B) $8,325.00.

C) $2,772.10.

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COGS = (709 × 2) + (250 × 6) = $2,918.00.

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What is the ending inventory level in dollars using the FIFO method?

A) $1,836.00.

B) $4,142.00.

C) $1,744.20.

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Ending Inventory = 306 × 6 = $1,836.00.

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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) DDB; FIFO.

B) Straight-line; FIFO.

C) Straight-line; LIFO.

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For year 1, straight-line depreciation will be lower than DDB. During deflationary periods, LIFO will result in lower cost of goods sold and hence higher income.

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	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) $5,248.44 $4,351.00

C) $4,351.00 $5,248.44

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Weighted average = cost of goods available / total units available. COGS = Units sold × wt. ave = 806 × 6.51171 = $5,248.44.

FIFO COGS = (699 × 5) + (107 × 8) = $4,351.00.

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What is the ending inventory level in dollars using the FIFO method?

A) $4,824.00.

B) $6,160.00.

C) $4,582.80.

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Ending Inventory = 603 × 8 = $4,824.00.

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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.

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(700 × 7.00) – [(400 × 4.00) + (300 × 5.00)] = 1,800

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Given the following information and assuming beginning inventory was zero and a periodic inventory system was used, what is the gross profit at the end of the period using the FIFO, LIFO, and average cost methods?

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

FIFO

LIFO

Cost Average

A) $650 $750 $677

B) $650 $750 $990

C) $677 $650 $677

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FIFO: $5,450 ? 4,800 = $650

LIFO: $5,450 ? $4,700 = $750

Cost Average: $5,450 ? $4,773.21 = $676.79

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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.

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Ending inventory equals 20 + 10 + 35 + 20 ? 60 = 25 of last units purchased in inventory.

(20 units)($65/unit) + (5 units)($55/unit) = $1,300 + $275 = $1,575