Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Question
Chapter 5, Problem 10DQ
To determine
Describe whether the inventory turnover rate would be higher or lower than the last year of a company which is selling its products at discounted prices compared to last year. Also describe the gross profit rate.
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Which of the following is false?
Select one:
a. Days’ sales in inventory is equal to the average number of days it takes to sell inventory.
b. Higher days’ sales in inventory means that inventory is less likely to become obsolete because it is sold in fewer days
c. Inventory ratio is equal to the number of times inventory was completely purchased and sold (turned over) during the period.
d. Inventory turnover ratio is calculated by dividing COGS by the average value of inventory over the period.
Which of the following is false?
Select one:
a. Day's sales in inventory is equal to the average number of days it takes to sell inventory
b. Higher Day's sales in inventory means that inventory is less likely to become obsolete because it is sold in fewer days
c. Inventory ratio is equal to the number of times inventory was completely purchased and sold (turn over) during the period
d. Inventory turnover ratio is calculated by dividing COGS by the average value of inventory over the period
A company follows the LIFO inventory method and is experiencing rising costs. What impact
will this have on its financial statements during a period of increasing prices?
a
b
C
d
Higher cost of goods sold and lower net income
Lower cost of goods sold and higher net income.
Lower inventory turnover and higher gross profit margin.
Higher inventory turnover and lower gross profit margin.
Chapter 5 Solutions
Financial Accounting, Student Value Edition (5th Edition)
Ch. 5 - Prob. 1DQCh. 5 - How are the financial statements of a manufacturer...Ch. 5 - What is a cost-flow assumption? Why is a cost-flow...Ch. 5 - If a company had two units that cost 1 each in its...Ch. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQ
Ch. 5 - During April, Bargain Hardware made sales of...Ch. 5 - Prob. 2SCCh. 5 - Prob. 3SCCh. 5 - Prob. 4SCCh. 5 - Prob. 5SCCh. 5 - Prob. 6SCCh. 5 - Prob. 7SCCh. 5 - Prob. 8SCCh. 5 - Prob. 9SCCh. 5 - Prob. 10SCCh. 5 - Prob. 11SCCh. 5 - Prob. 12SCCh. 5 - Prob. 1SECh. 5 - Prob. 2SECh. 5 - Prob. 3SECh. 5 - Prob. 4SECh. 5 - Prob. 5SECh. 5 - Prob. 6SECh. 5 - Prob. 7SECh. 5 - Prob. 8SECh. 5 - Lower-of-cost-or-market rule (Learning Objective...Ch. 5 - Prob. 10SECh. 5 - Inventory principles and terminology (Learning...Ch. 5 - Prob. 12SECh. 5 - Prob. 13SECh. 5 - Prob. 14SECh. 5 - Prob. 15SECh. 5 - Prob. 16AECh. 5 - Prob. 17AECh. 5 - Prob. 18AECh. 5 - Prob. 19AECh. 5 - Prob. 20AECh. 5 - Prob. 21AECh. 5 - Prob. 22AECh. 5 - Prob. 23AECh. 5 - Prob. 24AECh. 5 - Prob. 25AECh. 5 - Prob. 26AECh. 5 - Prob. 27AECh. 5 - FIFO (Learning Objective 2) 10-15 min. Tee Time,...Ch. 5 - LIFO (Learning Objective 2) 10-15 min. Refer to...Ch. 5 - Prob. 30BECh. 5 - Prob. 31BECh. 5 - Prob. 32BECh. 5 - Prob. 33BECh. 5 - Prob. 34BECh. 5 - Prob. 35BECh. 5 - Prob. 36BECh. 5 - Prob. 37BECh. 5 - Prob. 38BECh. 5 - Prob. 39BECh. 5 - Computing LIFO and journalizing inventory...Ch. 5 - Prob. 41APCh. 5 - FIFO, LIFO, and average cost (Learning Objectives...Ch. 5 - Prob. 43APCh. 5 - Prob. 44APCh. 5 - Prob. 45APCh. 5 - Estimating ending inventory (Learning Objective 7)...Ch. 5 - Prob. 47APCh. 5 - Prob. 48BPCh. 5 - Prob. 49BPCh. 5 - FIFO, LIFO, and average cost (Learning Objectives...Ch. 5 - Prob. 51BPCh. 5 - Prob. 52BPCh. 5 - Prob. 53BPCh. 5 - Prob. 54BPCh. 5 - Prob. 55BPCh. 5 - Continuing Exercise This exercise continues the...Ch. 5 - Prob. 1CPCh. 5 - Prob. 1CFSAPCh. 5 - Prob. 1EIACh. 5 - Prob. 2EIACh. 5 - Prob. 1FACh. 5 - Prob. 1IACh. 5 - Prob. 1SBACh. 5 - Prob. 1WCCh. 5 - Comprehensive Problem The Accounting Cycle for a...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- If inventory prices are rising, which inventory costing method should produce the smallest payment for taxes?arrow_forwardanswer these question in just two sentences. a..“If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.” If it is possible give reason in two sentences. b. In general, it's better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. If it is false give reason in two sentences. c. “It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.” If you are not agreed with this statement give justification in two sentences.arrow_forwardThe gross profit technique implies that A. The value of the inventory has not grown from prior years. B. The gross profit remains at the same level as in previous years. C. The correlation between sales and gross profit is consistent over time. D. Compared to prior years, neither sales nor cost of items sold have changed.arrow_forward
- The management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? (b) provide the highest ending inventory? |(c) result in the lowest income tax expense? (d) result in the most stable earnings over a number of years?arrow_forwardAn increasing inventory turnover ratio indicates that: a.a company has reduced the time it takes to purchase and sell inventory. b.a company is having trouble selling its inventory. c.a company may be holding too much inventory. d.a company has sold inventory at a higher profit.arrow_forwardWhich of the following is false? Question 33 options: a) Inventory turnover ratio is calculated by dividing COGS by the average value of inventory over the period. b) Inventory ratio is equal to the number of times inventory was completely purchased and sold (turned over) during the period. c) Higher days' sales in inventory means that inventory is less likely to become obsolete because it is sold in fewer days d) Days' sales in inventory is equal to the average number of days it takes to sell inventory.arrow_forward
- Inventory Costing Method. In the period of inflation, businesses will choose to use LIFO, whereas, during the deflation period, they will pick FIFO instead if they want to have the lowest income tax. Why is that?arrow_forwardThe management of Norton Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? (b) result in the most stable earnings over a number of years? (c) result in the lowest income tax expense? (d) provide the highest ending inventory?arrow_forwardWhat do you think will happen to the financial performance of the company if at the end of the accounting period, the inventory level is high?arrow_forward
- Is it possible to have a high inventory turnover and a high number of days’ sales in inventory? Why?arrow_forwardWhich of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.arrow_forwardWhich inventory method will result in lower net income in a period of rising prices? Which inventory method will result in lower net income in a period of falling prices?arrow_forward
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