Question

Question 4

a.) Use the following data to calculate cost of merchandise sold under FIFO method.

September 1	Beginning Inventory	15 units @ $20
September 10	Purchases	20 units @ $25
September 20	Purchases	25 units @ $28
September 30	Ending Inventory	30 units

Select one:

$825

$750

$675

$600

b.)Use the following data to calculate the cost of ending inventory under LIFO using the method.

September 1	Beginning Inventory	15 units @ $20
September 10	Purchases	20 units @ $25
September 20	Purchases	25 units @ $28
September 30	Ending Inventory	30 units

Select one:

$825

$750

$675

$600

c.)Use the following data to calculate the cost of ending inventory under Average Cost method.

September 1	Beginning Inventory	15 units @ $20
September 10	Purchases	20 units @ $25
September 20	Purchases	25 units @ $28
September 30	Ending Inventory	30 units

Select one:

$825

$750

$675

$600

d.)Calculate the cost of ending inventory using FIFO inventory cost method.

1/1	Beginning inventory	10 units @ $10 per unit
2/28	Purchases	40 units @ $12 per unit
5/10	Purchases	50 units @ $14 per unit
9/20	Purchases	30 units @ $16 per unit
12/31	Ending inventory	50 units

Select one:

$800

$760

$580

$500

Question 5

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is:

Select one:

FIFO

LIFO

average cost

all methods will generate the same cost of merchandise sold

Question 6

a.) If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is:

Select one:

average

LIFO

FIFO

all methods will generate the same net income

b.) If merchandise inventory is being valued at cost and the price level is consistently rising, which method of costing will yield the largest gross profit?

Select one:

average cost

LIFO

FIFO

all methods will generate the same gross profit

c.) “LIFO Reserve" is calculated as __________.

Select one:

LIFO end of year minus LIFO beginning of the year

FIFO inventory plus LIFO inventory

FIFO inventory minus LIFO inventory

None of the above

d.) If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is:

Select one:

$5

$60

$65

$125

e.)If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales price is $85, the amount included in inventory according to the lower of cost or market is:

Select one:

$85

$70

$65

$160

Answer 1

1. Units Sold = Opening Inv + Purchase – Ending Inv = 15+20+25-30 = 30 Units
   These units are taken 15 from the opening inventory and 15 units from the purchase of September 10 as FIFO method is followed.
   Cost of merchandise sold
   15 units of opening inv = 15*20 = $300
   15 units from the Sept.10 purchase = 15*25 = $375
   Cost of goods sold = = $675
2. Units Sold = Opening Inv + Purchase – Ending Inv = 15+20+25-30 = 30 Units
   These units are taken 25 from the purchase of Sept.20 and 5units from the purchase of Sept.10 as LIFO method is followed.
   Ending Inventory
   15 units of opening inventory                = 15*20 = $300
   15 units from the purchase of Sept.10 = 15*25 = $375
   Total Ending Inventory = $675
3. Units Sold = Opening Inv + Purchase – Ending Inv = 15+20+25-30 = 30 Units
   Total cost of inventory = (No of units * Price per unit) = [(15*20)+(20*25)+(25*28)] = $1500
   Average cost per unit = Total cost / No of units = [1500/(15+20+25)] = $25
   Total Ending Inventory = No of unit * cost per unit = 30*25 = $750
   OR
   Total Ending Inventory = Total inventory cost – Inventory sold = 1500 – (30*25) = $750
4. Units Sold = Opening Inv + Purchase – Ending Inv = 10+40+50+30-50 = 80 units
   80 units sold are taken 10 from the opening inventory, 40 units from the purchase of 2/28 & 30 units from the purchase of 5/10 as under FIFO method.
   Ending Inventory
   20 units from the purchase of 5/10 = 20*14 = $280
   30 units from the purchase of 9/20 = 30*16 = $480
   Total Ending Inventory = $760
5. During the period of consistently price rising LIFO method will show a greatest cost of merchandise sold a sthe last inventory will have a greater cost because of continuous price rising.
6. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is: FIFO method
7. If merchandise inventory is being valued at cost and the price level is consistently rising, FIFO method of costing will yield the largest Gross Profit.
8. “LIFO Reserve" is calculated as - FIFO inventory - LIFO Inventory.
9. If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is: $60
10. If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales price is $85, the amount included in inventory according to the lower of cost or market is: $65