Question 1

LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet.

Accepted Answer

LIFO (Last In, First Out) inventory costing method can result in less accurate reporting of inventory balance on the balance sheet because it matches the most recent costs of goods sold with revenue, which may not reflect the actual physical flow of goods or the current replacement cost of inventory.

Question 2

In general, in a period of falling prices, LIFO produces higher gross profits than FIFO.

Accepted Answer

In a period of falling prices, LIFO (Last-In, First-Out) produces higher gross profits than FIFO (First-In, First-Out) because under LIFO, the most recently purchased inventory (which is typically purchased at higher prices) is sold first. This results in a higher cost of goods sold and, consequently, a higher gross profit.

Question 3

Companies using LIFO are required to disclose the amount at which inventory would have been reported had it used FIFO. Similarly, companies using FIFO are required to disclose what their inventory would have been if the company had used LIFO.

Accepted Answer

Only companies using LIFO are required to disclose the amount at which inventory would have been reported had they used FIFO (the LIFO reserve). There is no similar requirement for companies using FIFO to disclose what their inventory would have been if they had used LIFO.

Question 4

Increasing inventory turnover rate will improve profitability.

Accepted Answer

The answer of Increasing inventory turnover rate will improve profitability....

Question 5

The cash conversion cycle is defined as:
Days sales outstanding - Days inventory outstanding + Days payable outstanding

Accepted Answer

The correct formula for the cash conversion cycle is: Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding.

Question 6

In order to estimate depreciation expense using the double-declining-balance method, managers must estimate the asset's useful life and its salvage value.

Accepted Answer

The double-declining-balance method requires estimating the asset's useful life but does not require estimating its salvage value.

Question 7

When a firm uses an accelerated method of depreciation for tax reporting in order to minimize its tax burden, it will not really save any tax dollars in the end because depreciation method merely changes the timing of the depreciation expenses but not the total.

Accepted Answer

The answer of When a firm uses an accelerated method...

Question 8

Next year, Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be expensed.

Accepted Answer

Under GAAP, assets that are not expected to be used in the future should be expensed.

Question 9

The gain or loss on the sale of the asset is computed by:
Gain / (Loss) on sale = Market value of asset - Net book value of asset

Accepted Answer

Gain / (Loss) on sale = Sale proceeds - Net book value of asset.

Question 10

Employee severance costs, as part of board-approved restructuring plans, are reported in the income statement even if the actual payment for these costs occurs in subsequent periods.

Accepted Answer

Employee severance costs related to restructuring plans are recognized in the income statement when the employer commits to the restructuring plan and the related obligations are incurred, even if the payments are made in subsequent periods.

Question 11

The percent used up ratio indirectly measures the likelihood of future capital expenditures that the company will have to make.

Accepted Answer

The percent used up ratio, which compares accumulated depreciation to the original cost of fixed assets, indicates how much of the assets' useful life has been consumed. A higher ratio suggests more of the assets have been used, implying a greater likelihood of future capital expenditures to replace or repair these assets.

Question 12

Other than raw materials and manufacturing overhead, what is the third component of inventories for manufacturing companies?

Accepted Answer

Direct labor is the third component of inventories for manufacturing companies, alongside raw materials and manufacturing overhead. It refers to the wages paid to workers directly involved in the production of goods.

Question 13

Aiello, Inc. had the following inventory in fiscal 2016. The company uses the FIFO method of accounting for inventory.
Beginning Inventory, January 1, 2016: 130 units @ $15.00
Purchase 200 units @ $18.00
Purchase 50 units @ $13.50
Purchase 110 units @ $15.75
Ending Inventory, December 31, 2016: 120 units
The company's cost of goods sold for fiscal 2016 is:

Accepted Answer

To calculate the cost of goods sold (COGS) using the FIFO method, we start by adding up all the purchases and the beginning inventory to find the total cost of goods available for sale. Then, we subtract the cost of the ending inventory, calculated based on the FIFO method, from the total cost of goods available for sale.Beginning Inventory: 130 units @ $15.00 = $1,950.00Purchase 1: 200 units @ $18.00 = $3,600.00Purchase 2: 50 units @ $13.50 = $675.00Purchase 3: 110 units @ $15.75 = $1,732.50Total cost of goods available for sale = $1,950.00 + $3,600.00 + $675.00 + $1,732.50 = $7,957.50Ending Inventory (120 units) calculation using FIFO:- The last units purchased are the first ones to remain in the ending inventory.- The ending inventory would consist of 10 units from the third purchase (110 units @ $15.75) and all 110 units from the second and first purchases, but since we only need 120 units in total for the ending inventory, we calculate as follows:  - 10 units @ $15.75 = $157.50 (from the third purchase)  - 110 units from the beginning inventory @ $15.00 = $1,650.00 (since FIFO assumes the first items purchased are the first sold, the remaining inventory would come from the earliest purchases)Total cost of ending inventory = $157.50 + $1,650.00 = $1,807.50COGS = Total cost of goods available for sale - Total cost of ending inventoryCOGS = $7,957.50 - $1,807.50 = $6,150.00However, none of the provided options exactly match the calculated COGS of $6,150.00, indicating a potential mistake in the calculation or a misunderstanding of the question's requirements. Given the options, the closest or intended correct answer might have been misinterpreted in the calculation process.

Question 14

Aiello Inc. had the following inventory in fiscal 2016. The company uses the LIFO method of accounting for inventory.
Beginning Inventory, January 1, 2016: 130 units @ $15.00
Purchase 200 units @ $18.00
Purchase 50 units @ $13.50
Purchase 110 units @ $15.75
Ending Inventory, December 31, 2016: 120 units
The company's cost of goods sold for fiscal 2016 is:

Accepted Answer

Under LIFO, the last items purchased are the first to be sold. The ending inventory is 120 units, so 370 units were sold (130+200+50+110-120). The cost of goods sold is calculated using the most recent purchases first: 110 units @ $15.75, 50 units @ $13.50, and 210 units @ $18.00, totaling $6,157.50.

Question 15

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows:

Accepted Answer

In times of falling prices, LIFO results in lower cost of goods sold because older, higher-cost inventory is sold first, and ending inventory is higher because it consists of more recent, lower-cost items.

Question 16

Assume that Barber Co. uses the LIFO inventory costing method for both tax and financial reporting purposes. The balance sheet reports inventories at $297 million. Then, in its footnotes, the company reports that inventories would have been $327 million had the company used the FIFO method.
The difference between these two numbers ($30 million) is referred to as:

Accepted Answer

The difference between the LIFO and FIFO inventory values ($30 million) is referred to as the LIFO reserve. This amount represents the additional inventory cost that would be reported if the FIFO method were used instead of LIFO.

Question 17

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands).
 If Caleres had used the FIFO method of inventory costing, 2016 inventory would have been:

Accepted Answer

The answer of The January 28, 2017 (fiscal year 2016)...

Question 18

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands).
 If Caleres had used the FIFO method of inventory costing, 2016 COGS would have been:

Accepted Answer

The answer of The January 28, 2017 (fiscal year 2016)...

Question 19

The 2016 financial statement of Willamette Valley Vineyards reported Net revenues of $19,425,412 and Cost of goods sold of $7,204,884. Note 3 to the financial statements reported that Inventories consisted of:
 The inventory turnover for 2016 was:

Accepted Answer

The answer of The 2016 financial statement of Willamette Valley...

Question 20

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands):
 The 2016 average days inventory outstanding is:

Accepted Answer

The answer of The January 28, 2017 (fiscal year 2016)...

Quiz 6: Inventory, Accounts Payable, and Long-Term Assets

LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet.

In general, in a period of falling prices, LIFO produces higher gross profits than FIFO.

Companies using LIFO are required to disclose the amount at which inventory would have been reported had it used FIFO. Similarly, companies using FIFO are required to disclose what their inventory would have been if the company had used LIFO.

Increasing inventory turnover rate will improve profitability.

The cash conversion cycle is defined as: Days sales outstanding - Days inventory outstanding + Days payable outstanding

In order to estimate depreciation expense using the double-declining-balance method, managers must estimate the asset's useful life and its salvage value.

When a firm uses an accelerated method of depreciation for tax reporting in order to minimize its tax burden, it will not really save any tax dollars in the end because depreciation method merely changes the timing of the depreciation expenses but not the total.

Next year, Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be expensed.

The gain or loss on the sale of the asset is computed by: Gain / (Loss) on sale = Market value of asset - Net book value of asset

Employee severance costs, as part of board-approved restructuring plans, are reported in the income statement even if the actual payment for these costs occurs in subsequent periods.

The percent used up ratio indirectly measures the likelihood of future capital expenditures that the company will have to make.

Other than raw materials and manufacturing overhead, what is the third component of inventories for manufacturing companies?

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows:

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands) . If Caleres had used the FIFO method of inventory costing, 2016 inventory would have been:

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands) . If Caleres had used the FIFO method of inventory costing, 2016 COGS would have been:

The 2016 financial statement of Willamette Valley Vineyards reported Net revenues of $19,425,412 and Cost of goods sold of $7,204,884. Note 3 to the financial statements reported that Inventories consisted of: The inventory turnover for 2016 was:

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands) : The 2016 average days inventory outstanding is: