30. During times of rising prices, which of the following is not an accurate sta

Question

30. During times of rising prices, which of the following is not an accurate statement? a. Average costing will yield results that are between those of FIFO and LIFO. b.LIFO will result in a higher cost of goods sold than FIFO. c. FIFO will result in a higher net income than LIFO. d. LIFO will result in higher income taxes than FIFO 31. If the cost of an item of inventory is ss0 and the current replacement cost is $57, the amount included in inventory according to the lower of cost or market (.CM rule) is a. $7 b. $50 e.$57 d. $107 32. During the taking of its physical inventory on December 31, 2010, Barry's Bike Shop incorrectly counted its inventory as $270,000 instead o f the correct amount of $190,000 The effect on the balance sheet and income statement would be as follows: at assets oversdated by $80.000retained earnings understated by $80,000; net income statement understated by $80,000. b assets overstated by $80,000;retained earnings understated by $80,000; no effect on the income statement. c. assets and retained earnings overstated by $80,000; net income overstated by $80,000. assets and retained earnings overstated by $80,000; net income understated by $80,000. 33. For the year ended December 31, 2011 Depot Max's cost of merchandise sold was S54,350. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max's inventory turmover for the year a. 8.3 b. 7.5 c. 7.9 d. 47 For the year ended December 31, 2011 Depot Max's cost of merchandise sold was $54,350. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max's number of days sales in inventory (average inventory holding period) is closest to a. 43 b. 50 34. c. 8 d. 47 the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30, based on the following data? 35. If Sept. 1 Merchandise inventory $125,000 Sept. I thru Sept. 30 Purchases (net) 300,000 Sept. 1 thru Sept.30 Sales (net) 150,000

Explanation / Answer

30. (d) is incorrect. Beacaue when LIFO accounting will be followed, the value of Closing stock will be less resulting into less value of Gross profit as most of the stock would have been bought at lower prices. Similarly cost of Goods sold will be higher resulting into lower gross profit and net profits.

Lower net profits will lead to lower income taxes.

31. $50. Since cost is lower than replacement cost.

32. (c) is the correct. Higher Closing Inventory will lead to Higher Current assets. Also Higher Closing Inventory will increase Gross profits and then higher net profits and then Higher retained earnings.

33. Inventory Turnover= Cost of Goods Sold/ Average Inventory

i.e. 54350/(6540+7250)/2

= 7.88 i.e approximately 7.9

Therefore correcta nswer is (c)

34. Average Inventory holding period= Closing Inventory* 365/Cost of Goods Sold

= 7250* 365/ 54350

= 49 Days approx (No answer seems to closer to this)

35. Cost of goods sold= 150000/130%

= 115385

Closing Inventory= Opening + Purchase - Cost of Goods Sold

= 125000+ 300000- 115385

= 309615

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