1. The tax benefit that the LIFO method provides might get nullified when: a. un
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Question
1. The tax benefit that the LIFO method provides might get nullified when:
a. unit costs tend to decrease as production increases.
b. unit costs tend to increase as production increases.
c. revenues are increasing faster than costs.
d. a fairly constant “base stock” is present.
2. Which of the following statements is not true as it relates to the dollar-value LIFO inventory method?
a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.
b. Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool.
c. Several pools are commonly employed in using the dollar-value LIFO inventory method.
d. Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.
3. Lawson Manufacturing Company has the following account balances at year end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 109,000
Prepaid insurance 6,000
What amount should Lawson report as inventories in its balance sheet?
a. $109,000.
b. $113,000.
c. $195,000.
d. $199,000.
4. Malone Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $80,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost $8,000. On March 9, Malone paid the supplier. On March 9, Malone should credit
a. purchase discounts for $1,600.
b. inventory for $1,600.
c. purchase discounts for $1,440.
d. inventory for $1,440.
5. Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?
a. $780,000.
b. $860,000.
c. $870,000.
d. $930,000.
6. Risers Inc. reported total assets of $2,400,000 and net income of $320,000 for the current year. Risers determined that inventory was overstated by $24,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?
a. $2,400,000 and $320,000.
b. $2,400,000 and $344,000.
c. $2,376,000 and $296,000.
d. $2,424,000 and $344,000.
7. Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2018 and 2017
contained errors as follows:
2018 2017
Ending inventory $9,000 overstated $24,000 overstated
Depreciation expense $6,000 understated $18,000 overstated
Assume that the proper correcting entries were made at December 31, 2017. By how much will 2018 income before taxes be overstated or understated?
a. $ 3,000 understated
b. $ 3,000 overstated
c. $ 6,000 overstated
d. $15,000 overstated
8. The following information is available for Naab Company for 2017:
Freight-in $ 60,000
Purchase returns 150,000
Selling expenses 460,000
Ending inventory 520,000
The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale?
a. $1,840,000.
b. $2,300,000.
c. $2,370,000.
d. $2,360,000.
9. Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid.
The amount to be recorded as a purchase return is
a. $5,400.
b. $6,120
c. $6,000.
d. $5,880.
10. Niles Co. has the following data related to an item of inventory:
Inventory, March 1 400 units @ $2.10
Purchase, March 7 1,400units @ $2.20
Purchase, March 16 280 units @ $2.25
Inventory, March 31 520 units
The value assigned to ending inventory if Niles uses LIFO is
a. $1,160.
b. $1,104.
c. $1,092.
d. $1,168.
11. Niles Co. has the following data related to an item of inventory:
Inventory, March 1 400 units @ $2.10
Purchase, March 7 1,400units @ $2.20
Purchase, March 16 280 units @ $2.25
Inventory, March 31 520 units
The value assigned to cost of goods sold if Niles uses FIFO is
a. $1,160.
b. $1,104.
c. $3,448.
d. $3,392.
12. Transactions for the month of June were:
Purchases Sales
June 1 (balance) 3,200@ $3.20 June 2 2,400 @ $5.50
3 8,800 @ 3.10 6 6,400 @ 5.50
7 4,800 @ 3.30 9 4,000 @ 5.50
15 7,200 @ 3.40 10 1,600 @ 6.00
22 2,000 @ 3.50 18 5,600 @ 6.00
25 800 @ 6.00
Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is
a. $16,440.
b. $16,640.
c. $17,160.
d. $17,880.
13. Farr Co. adopted the dollar-value LIFO inventory method on December 31, 2017. Farr's entire inventory constitutes a single pool. On December 31, 2017, the inventory was $960,000 under the dollar-value LIFO method. Inventory data for 2018 are as follows:
12/31/18 inventory at year-end prices $1,320,000
Relevant price index at year end (base year 2017) 110
Using dollar value LIFO, Farr's inventory at December 31, 2018 is
a. $1,056,000.
b. $1,224,000.
c. $1,200,000.
d. $1,320,000.
14. Milford Company had 500 units of “Tank” in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of “Tank”. Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.
15. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month?
a. $167,055.
b. $173,700.
c. $161,850.
d. $167,700.
16. The following information was available from the inventory records of Rich Company for January:
Units Unit Cost Total Cost
Balance at January 1 9,000 $9.77 $87,930
Purchases:
January 6 6,000 10.30 61,800
January 26 8,100 10.71 86,751
Sales:
January 7 (7,500)
January 31 (11,100)
Balance at January 31 4,500
Assuming that Rich does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?
a. $47,270.
b. $46,067.
c. $46,170.
d. $46,620.
17. Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2017 was $280,000. The balance in the same account at the end of 2018 is $420,000. Black’s Cost of Goods Sold account has a balance of $2,100,000 from sales transactions recorded during the year. What amount should Black report as Cost of Goods Sold in the 2018 income statement?
a. $1,960,000.
b. $2,100,000.
c. $2,240,000.
d. $2,520,000.
18. RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the
year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end
prices was $430,080, and the price index was 112.
What is RF Company’s gross profit?
a. $1,248,000.
b. $1,294,080.
c. $1,330,380.
d. $2,605,920.
19. Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the
year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end
prices was $379,500, and the price index was 110.
What is Hay Company’s ending inventory?
a. $330,000.
b. $345,000.
c. $349,500.
d. $379,500.
20. Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows:
Year ended Inventory at Price
December 31. End-of-year Prices Index
2016 $ 650,000 1.00
2017 1,260,000 1.05
2018 1,350,250 1.10
What is the 2018 inventory balance using dollar-value LIFO?
a. $1,350,250.
b. $1,285,000.
c. $1,227,500.
d. $1,257,750.
Explanation / Answer
1) The tax benefit that the LIFO method provides might get nullified when
Solution:
Explanation:
2) Which of the following statements is not true as it relates to the dollar-value LIFO inventory method?
Solution: It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO
3) Solution: 195,000
Working:
Raw materials
27000
WIP
59000
Finished goods
109000
195000
?
4) Solution: inventory for $1,440
Explanation: (80,000 - 8000) * 2% = 1440
5) Solution: $930,000
Explanation: 780,000 + 60,000 + 90,000 = 930,000
6) Solution: $2,400,000 and $344,000
Explanation: $2,400,000 and ($320,000 + $24,000)
?
As per norms we can solve first 4 parts
Raw materials
27000
WIP
59000
Finished goods
109000
195000
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