Question

For each statement that follows, identify the inventory cost formula that best fits the description, assuming...

For each statement that follows, identify the inventory cost formula that best fits the description, assuming a period of rising prices:

(a)

It results in a balance sheet inventory amount that is closer to the replacement cost.

 select an inventory cost formula                                                           Weighted average costFIFOSpecific identification
(b)

It does a better job of matching recent costs against revenue.

 select an inventory cost formula                                                           Weighted average costSpecific identificationFIFO
(c)

It understates the value of the inventory on the balance sheet.

 select an inventory cost formula                                                           FIFOWeighted average costSpecific identification
(d)

It may overstate gross profit.
Business   Accounting   
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Answer #1

(a) The Inventory cost formula that will bring inventory amount in Balance sheet as more closer to replacement cost would be FIFO

(b) The Inventory cost formula that will match recent costs against revenue would be Specific Identification

(c) The Inventory cost formula that may understate the value of inventory on the balance sheet in case of rising prices would be weighted average cost.

(d) The Inventory cost formula that may overstate gross profits in case of rising prices would be FIFO.

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