A. If merchandise inventory is being valued at cost and the price level is consi
ID: 2547786 • Letter: A
Question
A. If merchandise inventory is being valued at cost and the price level is consistently rising (inflation), which method of costing will yield the largest gross profit and higher current ratio?
a. Average cost
b. FIDO
c. FIFO
d. LIFO
e. Specific identification
B. General Motors presents the following data for the year ended December 31, 2017 (millions)
Receivables, net (allowance = $212M), beginning of year
Receivables, net (allowance = $278M), end of year
$ 8,700
8,164
Net Sales
133,449
Cost of Goods Sold
114,869
The days’ sales in receivables using 365 days is:
a. 22.3
b. 15.8
c. 26.8
d. 23.1
e. 22.7
a. Average cost
b. FIDO
c. FIFO
d. LIFO
e. Specific identification
Explanation / Answer
1 for largest GP and higher current ratio FIFO method should be used. Since price is continuous rising so earlier inventory will have less cost then newly purchse. so if we will take FIFO method then COGS will be less and result higher GP. and high value inventory remain in stock result higher CUrrnt ratio.
(C) FIFO
2.Average A/R = (opeing+closing)/2
=(8700+8164)/2
= 8432
days sales = Average Account receivable*365/sales
=8432*365/133449 =23.10
(D) 23.10
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