Question 1

Suppose that Badger's 2018 ending inventory,valued at year-end costs,was $153,600 and that the relative cost index for this inventory in 2018 was 1.20.What inventory balance would Badger report on its 12/31/18 balance sheet?

Accepted Answer

To find the historical cost of the inventory, we need to divide the ending inventory by the relative cost index:

$153,600 ÷ 1.20 = $128,000

Therefore, Badger would report an inventory balance of $128,000 on its 12/31/18 balance sheet.

Question 2

During 2016,WW Inc.reduced its LIFO eligible inventory quantities due to a problem with its major supplier.The effect of this liquidation was to increase its cost of goods sold by approximately $50 million.WW has a 40% income tax rate.If WW had not experienced these supplier problems and the resulting liquidation:

Accepted Answer

The liquidation of LIFO inventory increased COGS by $50 million, suggesting that older, cheaper inventory was used, which would have increased net income by $30 million if prices were declining.

Question 3

ATC's gross profit ratio (rounded)in 2016 is:

Accepted Answer

The gross profit ratio is calculated as (Gross Profit / Net Sales) * 100. If the given options are based on the correct calculation, 53.4% is the closest rounded figure for ATC's gross profit ratio in 2016.

Question 4

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end.The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%.What were net sales for the year?

Accepted Answer

The answer of Robertson Corporation's inventory balance was $22,000 at...

Question 5

Suppose that Badger's 2017 ending inventory,valued at year-end costs,was $143,000 and that the relative cost index for this inventory in 2017 was 1.10.In determining the inventory balance should Badger report in its 12/31/17 balance sheet:

Accepted Answer

The additional layer is calculated by dividing the ending inventory by the cost index: $143,000 / 1.10 = $130,000. The difference between the ending inventory and the adjusted inventory is $143,000 - $130,000 = $13,000. However, the question seems to have a typo, and the closest correct calculation would be $11,000.

Question 6

GG Inc.uses LIFO.GG disclosed that if FIFO had been used,inventory at the end of 2016 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2015.Assuming GG has a 40% income tax rate:

Accepted Answer

The answer of GG Inc.uses LIFO.GG disclosed that if FIFO...

Question 7

Ramen Inc.adopted dollar-value LIFO (DVL)as of January 1,2016,when it had a cost inventory of $600,000.Its inventory as of December 31,2016,was $667,800 at year-end costs and the cost index was 1.06.What was DVL inventory on December 31,2016?

Accepted Answer

The answer of Ramen Inc.adopted dollar-value LIFO (DVL)as of January...

Question 8

HH Company uses LIFO.HH disclosed that if FIFO had been used,inventory at the end of 2016 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2015.Assuming HH has a 30% income tax rate:

Accepted Answer

If the end-of-2016 inventory under FIFO would be $20 million lower than under LIFO, this means that the cost of goods sold under FIFO would have been $20 million higher than under LIFO. Therefore, if HH had used FIFO instead of LIFO, its reported cost of goods sold for 2016 would have been $20 million higher. The question asks for the reported cost of goods sold, not for tax savings, so we are not looking for after-tax amounts. Answer choice D is the best choice.

Question 9

Udon Inc.adopted dollar-value LIFO (DVL)as of January 1,2016,when it had an inventory of $700,000.Its inventory as of December 31,2016,was $777,000 at year-end costs and the cost index was 1.05.What was DVL inventory on December 31,2016?

Accepted Answer

To calculate the DVL inventory, we need to inflate the base year inventory to current year costs using the cost index.

Inflation factor = (ending CPI/ base CPI) = 1.05/1.00 = 1.05

Base year inventory at current year costs = $700,000 × 1.05 = $735,000

Therefore, the DVL inventory on December 31, 2016, would be $742,000.

Question 10

What inventory balance should Badger report on its 12/31/16 balance sheet?

Accepted Answer

The inventory balance should include the cost of goods ($100,000) plus the cost of the consignment inventory ($21,000), which equals $121,000. Therefore, option B is the correct answer.

Question 11

ATC's inventory turnover ratio for 2016 is:

Accepted Answer

The answer of ATC's inventory turnover ratio for 2016 is:
...

Question 12

Linguini Inc.adopted dollar-value LIFO (DVL)as of January 1,2016,when it had an inventory of $800,000.Its inventory as of December 31,2016,was $811,200 at year-end costs and the cost index was 1.04.What was DVL inventory on December 31,2016?

Accepted Answer

To calculate the DVL inventory, first convert the ending inventory to base year cost: $811,200 / 1.04 = $780,000. Since this is less than the beginning inventory of $800,000, there is no layer added, and the DVL inventory remains at $780,000.

Question 13

Compared to dollar-value LIFO,unit LIFO is:

Accepted Answer

The answer of Compared to dollar-value LIFO,unit LIFO is:
...

Question 14

Bond Company adopted the dollar-value LIFO inventory method on January 1,2016.In applying the LIFO method,Bond uses internal cost indexes and the multiple-pools approach.The following data were available for Inventory Pool No.3 for the two years following the adoption of LIFO: 
Under the dollar-value LIFO method,the inventory at December 31,2017,should be

Accepted Answer

The answer of Bond Company adopted the dollar-value LIFO inventory...

Question 15

Dollar-value LIFO:

Accepted Answer

Dollar-value LIFO re-creates LIFO layers for measuring inventory costs but starts with ending inventory measured at current costs. This method allows for a more accurate measurement of inventory costs and can result in tax benefits. Option B is incorrect because Dollar-value LIFO can actually decrease recordkeeping costs by reducing the need for physical inventory counts. Option C is incorrect because Dollar-value LIFO is allowed for external financial reporting purposes as well.

Question 16

If a company uses LIFO,a LIFO liquidation causes a company's income taxes to increase:

Accepted Answer

LIFO liquidation happens when a company sells inventory items that were purchased at an earlier time, i.e., with lower costs, than the remaining inventory. This results in higher gross profits, which in turn increases the company's taxable income. When inventory purchase costs are rising, LIFO liquidation can lead to a significant increase in taxable income and hence, income taxes.

Question 17

Thompson's 2016 inventory turnover ratio is:

Accepted Answer

The answer of Thompson's 2016 inventory turnover ratio is:
...

Question 18

When reported in financial statements,a LIFO allowance account usually:

Accepted Answer

The LIFO allowance account is added to LIFO cost to indicate what the inventory would cost on a FIFO basis. This adjustment is necessary as the LIFO method assumes that the most recently purchased inventory is sold first, which results in higher cost of goods sold and lower ending inventory values. By adding the LIFO allowance to LIFO cost, the financial statements can show what the inventory would have cost on a FIFO basis.

Question 19

Thompson's 2016 gross profit ratio is:

Accepted Answer

Gross profit ratio = (Gross profit / Net sales) x 100%
Gross profit = Net sales - Cost of goods sold
From the information given, we can calculate:
Gross profit = $400,000 - $320,000 = $80,000
Gross profit ratio = ($80,000 / $400,000) x 100% = 20%

Question 20

The average days inventory for ATC (rounded)for 2016 is:

Accepted Answer

The formula for calculating days inventory is (365 days / inventory turnover ratio). 
Using the information given in the question, 
Inventory turnover ratio for ATC in 2016 = 2.77. 
Therefore, Days inventory = 365/2.77 = 131.6 days which is rounded to 132 days. Hence the best choice is C) 132 days.

Quiz 8: Inventories: Measurement