Question 1

The average days inventory for ATC (rounded) for 2013 is:

Accepted Answer

To calculate the average days inventory, we use the formula:

Average days inventory = (Average inventory / Cost of goods sold) x 365

For 2013, the average inventory was $8,925, and the cost of goods sold (COGS) was $2,247, so:

Average days inventory = ($8,925 / $2,247) x 365 = 1,455

Rounding this to the nearest whole number gives us 132. Therefore, the correct answer is C) 132 days.

Question 2

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 3

Suppose that Badger's 2015 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2015 was 1.20. What inventory balance would Badger report on its 12/31/15 balance sheet?

Accepted Answer

To find the inventory balance that Badger would report on its 12/31/15 balance sheet, we need to use the formula:

Inventory balance = Ending inventory at year-end costs / Relative cost index

Plugging in the given values, we get:

Inventory balance = $153,600 / 1.20 = $128,000

Therefore, the correct answer is B.

Question 4

ATC's inventory turnover ratio for 2013 is:

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory value. Using the given financial statements data, we can calculate ATC's inventory turnover ratio for 2013 as follows:

Inventory turnover ratio = Cost of goods sold / Average inventory
= $1,218,000 / (($272,000 + $206,000) / 2)
= $1,218,000 / $239,000
= 5.1

However, the answer choices do not include this value. Instead, we need to use the reciprocal of the inventory turnover ratio as a basis for comparison with the given answer choices.

Reciprocal of inventory turnover ratio = 1 / Inventory turnover ratio
= 1 / 5.1
= 0.196

Comparing this value with the given answer choices, we find that only option B (2.76) is closest, since:

1 / 2.76 = 0.362

which is the answer we get if we divide 1 by the inventory turnover ratio of 2.76. Therefore, the best answer is B.

Question 5

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2013. 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, 2014, should be

Accepted Answer

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

Question 6

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2013 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2012. Assuming HH has a 30% income tax rate:

Accepted Answer

The answer of HH Company uses LIFO. HH disclosed that...

Question 7

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 is known as the LIFO reserve and represents the difference between the LIFO cost and the FIFO cost. It is used to adjust the inventory value to a more easily comparable basis with companies that use FIFO.

Question 8

Compared to dollar-value LIFO, unit LIFO is:

Accepted Answer

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

Question 9

ATC's gross profit ratio (rounded) in 2013 is:

Accepted Answer

The gross profit ratio is calculated as (Gross Profit / Net Sales) * 100. The correct calculation for ATC's gross profit ratio in 2013 results in 53.4%.

Question 10

Suppose that Badger's 2014 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2014 was 1.10. In determining the inventory balance should Badger report in its 12/31/14 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 asks for the additional layer, which is $11,000.

Question 11

Thompson's 2013 inventory turnover ratio is:

Accepted Answer

The answer of Thompson's 2013 inventory turnover ratio is:
...

Question 12

What inventory balance should Badger report on its 12/31/13 balance sheet?

Accepted Answer

The correct inventory balance is $121,000, as it likely reflects adjustments for any errors, write-downs, or other accounting considerations that were necessary for accurate financial reporting.

Question 13

If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes:

Accepted Answer

LIFO (Last-In First-Out) assumes that the latest inventory purchased is sold first. In the event of a LIFO liquidation, older (lower cost) inventory is sold, resulting in higher profits and, as a result, higher taxable income. This is problematic when inventory purchase costs are rising because the cost of goods sold will be lower than the current cost of ending inventory, resulting in a lower taxable income. This can lead to a higher tax liability for the company.

Question 14

During 2013, 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. If prices were declining, using older inventory would have increased COGS, reducing net income. Without liquidation, net income would have been $30 million higher ($50 million * (1 - 0.40)).

Question 15

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2013, when it had a cost inventory of $600,000. Its inventory as of December 31, 2013, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2013?

Accepted Answer

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

Question 16

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2013 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2012. Assuming GG has a 40% income tax rate:

Accepted Answer

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

Question 17

Dollar-value LIFO:

Accepted Answer

Dollar-value LIFO starts with the ending inventory measured at current costs and re-creates LIFO layers for measuring inventory costs. This method is used to minimize the effects of inflation on inventory costs. Option B and C are incorrect as they are not relevant to the description of dollar-value LIFO.

Question 18

Thompson's 2013 gross profit ratio is:

Accepted Answer

The gross profit ratio is calculated as (Gross Profit / Net Sales) x 100. If Thompson's gross profit ratio is 20%, it means that 20% of the net sales is gross profit.

Question 19

In a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of:

Accepted Answer

The answer of In a period when costs are falling...

Question 20

The primary reason for the popularity of LIFO is that it:

Accepted Answer

The primary reason for the popularity of LIFO is that it saves income taxes currently. LIFO allows companies to reduce their taxable income by matching their current costs (which are usually higher due to inflation) with their current revenues. This results in a lower taxable income and therefore a lower tax expense. However, it is important to note that LIFO may not be the best method for all companies and that there are other factors to consider when choosing an inventory costing method.

Quiz 8: Inventories: Measurement