Question

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

Multiple Choice

• LIFO.

• FIFO.

• Weighted-average.

• Income will be the same under each assumption.

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

Multiple Choice

• LIFO.

• FIFO.

• Weighted-average.

Under a perpetual inventory system:

Multiple Choice

• Cost of good sold is recorded with a period-end adjusting entry.

• Purchase discounts are not recorded.

• Inventory purchases are recorded only at the end of the period.

Inventory records for Dunbar Incorporated revealed the following:

Date		Transaction	Number of Units			Unit Cost
Apr.	1	Beginning inventory		430		$	2.17
Apr.	20	Purchase		330			2.70

Dunbar sold 620 units of inventory during the month. Ending inventory assuming LIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

Multiple Choice

• $304.

• $933.

• $378.

• $891.

Inventory records for Dunbar Incorporated revealed the following:

Inventory records for Dunbar Incorporated revealed the following: Date Transaction Number of Units Unit Cost Apr. 1 Beginning inventory 550 $ 2.34 Apr. 20 Purchase 330 2.64 Dunbar sold 650 units of inventory during the month. Ending inventory assuming weighted-average cost would be: (Round weighted-average unit cost to 4 decimal places and final answer to the nearest dollar amount.) Multiple Choice $564. $624. $573. $532.
The following information pertains to Julia & Company: March 1 Beginning inventory = 26 units @ $5.80 March 3 Purchased 21 units @ 4.00 March 9 Sold 30 units @ 8.40    What is the cost of goods sold for Julia & Company assuming it uses LIFO? (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.) Multiple Choice $122. $136. $120.

Inventory records for Marvin Company revealed the following:

Date		Transaction	Number of Units			Unit Cost
Mar.	1	Beginning inventory		980		$	7.19
Mar.	10	Purchase		590			7.62
Mar.	16	Purchase		710			8.12
Mar.	23	Purchase		540			8.52

Marvin sold 1,890 units of inventory during the month. Cost of goods sold assuming FIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

Multiple Choice

• $14,590.

• $16,103.

• $15,221.

A company's sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was $1,600 and its ending inventory is $2,400. The company's inventory turnover ratio equals:

Multiple Choice

• 5 times.

• 10 times.

• 20 times.

• 30 times.

Anthony Corporation reported the following amounts for the year:

Net sales	$	296,000
Cost of goods sold		138,000
Average inventory		50,000

Anthony's average days in inventory is: (Round to the nearest whole day.)

Multiple Choice

• 170 days.

• 114 days.

• 132 days.

• 151 days.

Anthony Corporation reported the following amounts for the year:

Net sales	$	296,000
Cost of goods sold		138,000
Average inventory		50,000

Anthony's gross profit ratio is:

Multiple Choice

• 53.4%.

• 51.9%.

• 50.3%

Answer 1

1)Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs	2	Reason
LIFO	Incorrect	Here the later units are sold first and inventory represents the older purchased units which is cheaper. Hence the reported income will be lower.
FIFO	Correct	Here the older units are sold first and inventory represents the recently purchased units which is costly. Hence the reported income will be higher.
Weighted average	Incorrect	Here the inventory is valued at the average of older and newer purchased items. Hence the reported income will be comparatively lower than FIFO.
2) Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs	Correct/ Incorrect
LIFO	Correct	Here the later units are sold first and inventory represents the older purchased units which is cheaper. Hence the reported income will be lower. It is preferable to use this method since the reported income under this method will be lower.
FIFO	Incorrect	Here the older units are sold first and inventory represents the recently purchased units which is costly. Hence the reported income will be higher.
Weighted average	Incorrect	Here the inventory is valued at the average of older and newer purchased items. Hence the reported income will be comparatively lower than FIFO.
3) Under a perpetual inventory system		Cost of good sold is recorded with a period-end adjusting entry.

Date	Particulars	Units	Cost	Total
Apr-01	Opening	430	2.17
Apr-20	Purchases	330	2.70
	Sales	-620
Apr-30	Inventory (LIFO)	140	2.17	304
4)	Cost of stock			304

Date	Particulars	Units	Cost	Total
Apr-01	Opening	550	2.34	1,287
Apr-20	Purchases	330	2.64	871
	Sales	-650
Apr-30	Inventory (LIFO)	230	2.49	573
5)	Cost of stock			573

Date	Particulars	Units	Cost	Total
Mar-01	Opening	26	5.80
Mar-03	Purchases	21	4.00
Mar-09	Sales	-30	8.40
Mar-09	COGS	21	4.00	84
Mar-09	COGS	9	5.80	52
6)	COGS			136

Date	Particulars	Units	Cost	Total
Mar-01	Opening	980	7.19
Mar-10	Purchases	590	7.62
Mar-16	Purchases	710	8.12
Mar-23	Purchases	540	8.52
	Sales	-1890
	COGS	540	8.52	4,601
	COGS	710	8.12	5,765
	COGS	590	7.62	4,496
	COGS	50	7.19	360
7)	COGS			15,221

Opening stock	1,600
COGS	20,000
Sales	60,000
Closing stock	2,400
Average stock	2,000
Inventory T/o ration	30.00	Sales/ Stock
8)	30	Times

Net sales	296,000
COGS	138,000
Average stock	50,000
Inventory T/o ration	132	Stock / COGS*365
9)	132	Days

Net sales	296,000
COGS	138,000
Average stock	50,000
Gross profit	158,000	Sales- COGS
Gross Profit %	53.4%	Gross profit/ Sales
10)	1