Question 1

In a period of rising prices, the inventory method which tends to report the lowest inventory is

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Question 2

If companies have identical inventory costs but use different inventory flow assumptions when the price of goods have not been constant, then the

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Question 3

For the current month, the beginning inventory of Elipresse Inc. consisted of 3 units that cost CHF5,500 each. During the month, the company made two purchases: 4 units at CHF5,800 each and 1 units at CHF5,750. Elipresse sold 5 units during the month. If Elipresse uses specific identification and wishes to maximize net income, the units costs allocated to cost of goods sold will be:

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The answer of For the current month, the beginning inventory...

Question 4

Henri Company uses the average-cost inventory method. Its 2014 ending inventory was €40,000, but it would have been €60,000 if FIFO had been used. Thus, if FIFO had been used, Henri's income before income taxes would have been

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Question 5

The manager of Yates Company is given a bonus based on income before income taxes. Net income, after taxes, is $10,500 for FIFO and $9,450 for average-cost. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of average-cost?

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Question 6

In a period of falling prices, which inventory method would result in the lowest tax burden?

Accepted Answer

In a period of falling prices, FIFO (First-in, First-out) inventory method would result in the lowest tax burden because it assumes that older inventory (with higher costs) is sold first, resulting in lower cost of goods sold and therefore a lower taxable income. This method results in the highest value for ending inventory, which reduces the amount of income taxed.

Question 7

The specific identification method of inventory costing

Accepted Answer

The specific identification method allows management to choose which specific units of inventory are being sold, which could result in manipulating net income. Therefore, the answer is D.

Question 8

In periods of rising prices, the inventory method which results in the inventory value on the statement of financial position that is closest to current cost is the

Accepted Answer

FIFO method assumes that the oldest units of inventory are sold first and the newest units remain in ending inventory. Therefore, in periods of rising prices, ending inventory valuation under FIFO represents the most recent inventory cost, which is closest to current cost. The other methods, such as specific identification and average-cost method, do not necessarily reflect the current cost of inventory in periods of rising prices. The tax method is not a recognized inventory valuation method.

Question 9

Companies adopt different cost flow methods for each of the following reasons except

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Question 10

The accountant at Paige Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or average-cost as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $18,200. The average-cost method will result in income before taxes of $16,450. What is the difference in tax that would be paid between the two methods?

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The answer of The accountant at Paige Company is figuring...

Question 11

At year-end, Dana Corporation has 3,000 units of Lolland, 3,000 units of Falster, and 4,500 units of Jultand in its ending inventory. Specific data with respect to each product follows:  What amount will Dana report for ending inventory using lower-of-cost-or-net realizable value?

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Question 12

Breguet Company uses the FIFO inventory method. The company reported inventory of CHF2,270,000 on its December 31, 2014 statement of financial position. Had average-cost been used, the company would have reported inventory of CHF1,860,000. The company's tax rate is 30%. What is the impact of the inventory cost flow assumption on Breguet's 2014 financial statements?

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Question 13

In a period of rising prices which inventory method generally provides the greatest amount of net income?

Accepted Answer

In a period of rising prices, FIFO (First In, First Out) inventory method assumes that the oldest items purchased are sold first. Since the older items are purchased at lower costs, this results in higher reported net income as compared to average-cost method, which considers the average cost of all items in inventory, or LISH (Last In, Still Here) method, which assumes that the newest items are still in inventory. Therefore, FIFO generally provides the greatest amount of net income in a period of rising prices.

Question 14

Which inventory costing method most closely approximates current cost for each of the following?

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Question 15

Lee Industries had the following inventory transactions occur during 2014:  The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's after-tax income using FIFO? (rounded to whole dollars)

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Question 16

Lee Industries had the following inventory transactions occur during 2014:  The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)

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Question 17

The accountant at Reber Company has determined that income before income taxes amounted to $6,750 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $315 greater if the average-cost assumption were used, what would be the amount of income before taxes under the average-cost assumption?

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The answer of The accountant at Reber Company has determined...

Question 18

Aiwa Inc. uses the average-cost inventory method. In 2014, the company reported net income of ¥59,600,000. Had average-cost been used, the company would have reported net income of ¥58,900,000. Assuming a 25% tax rate, what is the impact of the inventory cost flow assumption on Aiwa's taxes for 2014?

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The answer of Aiwa Inc. uses the average-cost inventory method....

Question 19

The consistent application of an inventory costing method is essential for

Accepted Answer

Consistent application of an inventory costing method is important for comparability. This allows for accurate comparisons to be made within and across accounting periods, ensuring that financial statements are reliable and users can make informed decisions based on the information provided.

Question 20

Franco Company uses the FIFO inventory method. Its 2014, the company reported net income of €820,000. Had average-cost been used, the company would have reported net income of €760,000. Assuming a 40% tax rate, what is the impact of the inventory cost flow assumption on Franco's taxes for 2014?

Accepted Answer

FIFO method assumes that the goods that are sold first are the ones that were purchased first, which means they have a lower cost of goods sold, resulting in a higher net income. This, in turn, leads to higher taxable income and higher taxes to be paid. Therefore, since FIFO method resulted in higher net income, Franco would pay €24,000 more in taxes for 2014 than if they had used the average-cost method.

Quiz 6: Inventories