Question 1

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

Accepted Answer

Under the FIFO method, the cost of goods sold is calculated using the oldest inventory first. As a result, when prices are falling, the cost of goods sold will be calculated using the highest-priced inventory, which will result in a lower taxable income and lower tax burden.

Question 2

The manager of Yates Company is given a bonus based on income before income taxes.Net income, after taxes, is $8,400 for FIFO and $7,560 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?

Accepted Answer

The answer of The manager of Yates Company is given...

Question 3

Henri Company uses the average-cost inventory method.Its 2010 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

Accepted Answer

If FIFO had been used, the cost of goods sold would have been lower, resulting in a higher gross profit and therefore higher income before taxes. The difference between ending inventory under the two methods is €20,000, which would have directly increased the income before taxes if FIFO had been used.

Question 4

Breguet Company uses the FIFO inventory method.The company reported inventory of CHF2,230,000 on its December 31, 2011 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 2011 financial statements?

Accepted Answer

The answer of Breguet Company uses the FIFO inventory method.The...

Question 5

At December 31, 2011, Bosan Corporation has 3,500 units of model 63 and 2,500 units of model 64 in its ending inventory.Specific data with respect to each product follows:  What amount will be reported for inventory on Boson's statement of financial position after the company applies LCNRV?

Accepted Answer

The answer of At December 31, 2011, Bosan Corporation has...

Question 6

For the current month, the beginning inventory of Elipresse Inc.consisted of 3 units that cost CHF6,500 each.During the month, the company made two purchases: 4 units at CHF6,800 each and 1 units at CHF6,750.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:

Accepted Answer

Using the specific identification method, the cost of goods sold would be allocated to the specific units sold. In this case, Elipresse sold 5 units, so the cost of goods sold would be allocated to those 5 specific units.

The beginning inventory consisted of 3 units at CHF6,500 each, so the cost of goods sold would include those 3 units. Elipresse also purchased 4 units at CHF6,800 each and 1 unit at CHF6,750, so those would be the remaining units included in the cost of goods sold.

Therefore, the cost of goods sold would consist of: 
- 3 units @ CHF6,500 each 
- 1 unit @ CHF6,750 
- 1 unit @ CHF6,800

This totals to CHF34,050 in cost of goods sold.

Option D is the only choice that includes these specific units and therefore maximizes net income.

Question 7

The specific identification method of inventory costing

Accepted Answer

The specific identification method allows management to choose which costs are assigned to specific units of inventory, which can lead to manipulation of net income. Therefore, it may not accurately reflect the true cost of inventory and can be used to intentionally inflate net income.

Question 8

Franco Company uses the FIFO inventory method.Its 2010, the company reported net income of €840,000.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 2010?

Accepted Answer

Using FIFO method increased the net income by €80,000 (840,000-760,000). As a result, the taxable income will also increase by €80,000, and with a tax rate of 40%, Franco would pay €32,000 more in taxes (40% of 80,000).

Question 9

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

Accepted Answer

The answer of If companies have identical inventory costs but...

Question 10

Aiwa Inc.uses the average-cost inventory method.Its 2011, the company reported net income of ¥59,800,000.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 2011?

Accepted Answer

The answer of Aiwa Inc.uses the average-cost inventory method.Its 2011,...

Question 11

At year-end, Dana Corporation has 2,000 units of Lolland, 2,000 units of Falster, and 3,000 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?

Accepted Answer

The answer of At year-end, Dana Corporation has 2,000 units...

Question 12

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

Accepted Answer

During a period of rising prices, FIFO method provides the greatest amount of net income because it assumes that the items purchased first are sold first, and the items remaining in inventory are valued at more recent higher prices. Therefore, the cost of goods sold is lower, and the net income is higher compared to other inventory methods such as LIFO or average-cost.

Question 13

Net realizable value is

Accepted Answer

The answer of Net realizable value is
...

Question 14

Carlsberg Corporation has 1,000 units of product#1and 2,000 units of product#2 in its inventory at December 31, 2011.Specific data with respect to each product follows:  What amount will be reported on the company statement of financial position at December 31, 2011 for ending inventory using lower-of-cost-or-net realizable value?

Accepted Answer

To calculate the ending inventory using lower-of-cost-or-net realizable value, we need to compare the cost of inventory with its net realizable value (NRV). The NRV is the estimated selling price minus the estimated costs of completion and disposal. 
For Product #1, the cost is CHF50 per unit, and the NRV is CHF60 per unit, so the NRV is higher than the cost. Therefore, we use the cost of CHF50 per unit for Product #1. 
For Product #2, the cost is CHF60 per unit, and the NRV is CHF70 per unit, so the NRV is higher than the cost. Therefore, we use the cost of CHF60 per unit for Product #2. 
The total cost of the ending inventory is (1,000 units x CHF50 per unit) + (2,000 units x CHF60 per unit) = CHF100,000 + CHF120,000 = CHF220,000. 
The total NRV of the ending inventory is (1,000 units x CHF60 per unit) + (2,000 units x CHF70 per unit) = CHF60,000 + CHF140,000 = CHF200,000. 
Since we use the lower-of-cost-or-net realizable value, we need to report the ending inventory at CHF200,000. Therefore, the amount reported on the company statement of financial position at December 31, 2011 for ending inventory using lower-of-cost-or-net realizable value is CHF148,000 (i.e., 1,000 units x CHF50 per unit + 2,000 units x CHF60 per unit).

Question 15

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 $9,100.The average-cost method will result in income before taxes of $8,225.What is the difference in tax that would be paid between the two methods?

Accepted Answer

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

Question 16

The consistent application of an inventory costing method is essential for

Accepted Answer

Consistent application of an inventory costing method is essential for comparability, as it ensures that financial statements can be compared across different accounting periods and between different companies in the same industry. This helps investors and stakeholders make informed decisions based on accurate and reliable financial information.

Question 17

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

Accepted Answer

The answer of In a period of rising prices, the...

Question 18

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

In periods of rising prices, the first-in, first-out (FIFO) method assumes that the items that are added first to inventory are the first items sold or used. Thus, the inventory remaining on hand is valued at the most recent costs. This results in an inventory value on the statement of financial position that is closest to current cost.

Question 19

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

Accepted Answer

The answer of Which inventory costing method most closely approximates...

Question 20

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 $225 greater if the average-cost assumption were used, what would be the amount of income before taxes under the average-cost assumption?

Accepted Answer

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

Quiz 6: Inventories