Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Chapter 5, Problem 7SE
1.
To determine
Compute which method of inventory costing will produce the lowest cost of goods sold.
2.
To determine
Compute which method of inventory costing will produce the highest cost of goods sold.
3.
To determine
Compute the method of inventory costing that will produce the highest cost of goods sold, when prices had been declining instead of rising.
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5- Inventory Cost Flow
Assumptions
LEARNING OBJECTIVE: Differentiate between the
key characteristics of the four inventory valuation
methods.
Which of the following descriptions corresponds
with the weighted average inventory valuation
method?
a.) Matches cost of items purchased against
cost of items in inventory
b.) Disregards when inventory was purchased
c.) Inventory purchased first has a greater
weight than inventory purchased later
d.) Tends to be used for inventories of large,
unique items
SUBMIT MY ANSWER
If the inventory is valued at cost and the price level is steadily increasing, which type of inventory cost flow method, FIFO, LIFO, or the average cost method, will yield
1- The highest inventory cost. Provide a brief explanation and reasoning .
2- The lowest inventory cost. Provide a brief explanation and reasoning.
3- The highest gross profit. Provide a brief explanation and reasoning.
4- The lowest gross profit. Provide a brief explanation and reasoning.
Identify that if prices are rising, which inventory cost flow method will produce the highest amount of ending inventory?
A. Weighted average
B. LIFO
C. FIFO
S. LIFO, FIFO, and weighted average will all produce the same amount of cost of goods sold.
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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- Lesson 7: Valuing Inventory 11. Describe how to find inventory value using the average cost method.arrow_forward1.At a time of declining prices, which cost flow assumption will result in the highest ending inventory? A. FIFO B. LIFO C. Weighted average D. Either A or C 2. When the cost of inventory is rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? A. FIFO B. Weighted Average. C. All methods will produce the same amount of cost of goods sold. D. LIFO 200 The inventory records for Raymond Co. reflected the following Beginning Inventory @ May 1 200 units @ $1.00 First Purchase @ May 7 Second Purchase @ May 17 Third Purchase @ May 23 Sales @ May 31 B. $1.15 C. $1.14 D. $1.31 B. $130 C. $324 D. $340 300 units @ $1.10 = 400 units @ $1.20 100 units @ $1.30 = 120 900 units @ $1.50 1350 30 go 3. Determine the weighted average cost per unit for May. A. $1.22 .4.Determine the amount of cost of goods sold assuming the LIFO cost flow method. A. $1,140 B. $1,040 C. $1,000 D. $940 5. Determine the amount of gross margin assuming the FIFO cost flow method. A. $114arrow_forwardThis exercise tests your understanding of the four inventory methods. List the name of the inventory method that best fits the description. Assume that the cost of inventory is rising. 1. Results in a cost of ending inventory that is close to the current cost of replacing the inventory 2. Used to account for automobiles, jewelry, and art objects 3. Generally associated with saving income taxes 4. Provides a middle-ground measure of ending inventory and cost of goods sold 5. Maximizes reported income 6. Enables a company to keep reported income from dropping lower by liquidating older layers of inventory (assume rising prices) 7. Writes inventory down when its net realizable value drops below its historical cost 8. Results in an old measure of the cost of ending inventory 9. Matches the most current cost of goods sold against sales revenue 10. Enables a company to buy high-cost inventory at year-end and thereby decrease reported income and income taxarrow_forward
- Identify the inventory costing method (SI, FIFO, LIFO, or WA) best described by each of the following separate statements. Assume a period of increasing costs. 1. Results in the highest cost of goods sold. 2. Yields the highest net income. 3. Has the lowest tax expense because of reporting the lowest net income. 4. Better matches current costs with revenues. 5. Precisely matches the costs of items with the revenues they generate.arrow_forwardOn the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Class 1: Model A Model B Model C Class 2: Model D Model E Product Model A Model B Model C Model D Model E Total Product Class 1: Model A Model B Model C Class 2: Total Subtotal Model D Model E Inventory Quantity Total 26 a. Determine the value of the inventory at the lower of cost or market applied to each item in the Inventory. Subtotal Product Model A Model B Model C Model D Model E 26 10 49 9 b. Determine the value of the inventory at the lower of cost or market applied to each class of inventory. Cost Per Unit Inventory Quantity Inventory at the Lower of Cost or Market Market Value per Unit Inventory Cost Quantity per Unit (Net Realizable Value) Cost per Unit $149 284 147 54 121 00000 Market Value per Unit (Net Realizable Value) 88 38 00000 $137 274 143 46 Inventory at the Lower of Cost or Market Market Value per…arrow_forwardThe cost method that will yield an ending inventory value that is somewhere between possible high and low costs (prices) using traditional costing methods is the a.weighted average inventory cost method. b.LIFO inventory cost method. c.specific identification inventory cost method. d.FIFO inventory cost method.arrow_forward
- Hi, This question is asking to determine the cost of goods sold and the cost of ending inventory using the average cost formula.arrow_forwardOn the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product InventoryQuantity Cost PerUnit Market Value per Unit(Net Realizable Value) Class 1: Model A 16 $162 $169 Model B 32 190 198 Model C 34 152 148 Class 2: Model D 31 298 309 Model E 42 72 78 Question Content Area a. Determine the value of the inventory at the lower of cost or market applied to each item in the inventory. Inventory at the Lower of Cost or Market Product InventoryQuantity Costper Unit Market Valueper Unit(Net Realizable Value) Cost Market Lower of Cost or Market Model A fill in the blank 1b67cb01c017023_1 $fill in the blank 1b67cb01c017023_2 $fill in the blank 1b67cb01c017023_3 $fill in the blank 1b67cb01c017023_4 $fill in the blank 1b67cb01c017023_5 $fill in…arrow_forwardIf prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? Multiple Choice Weighted average. LIFO, FIFO, and the weighted-average inventory cost flow methods will all produce equal amounts of cost of goods sold. FIFO. LIFO.arrow_forward
- On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product InventoryQuantity Cost PerUnit Market Value per Unit(Net Realizable Value) Class 1: Model A 25 $113 $127 Model B 13 274 289 Model C 17 217 195 Class 2: Model D 31 70 59 Model E 39 61 45 Question Content Area a. Determine the value of the inventory at the lower of cost or market applied to each item in the inventory. Inventory at the Lower of Cost or Market Product InventoryQuantity Costper Unit Market Valueper Unit(Net RealizableValue) Cost Market Lower ofCost orMarket Model A Model A $Model A $Model A $Model A $Model A $Model A Model B Model B Model B Model B Model B Model B Model B Model C Model C Model C…arrow_forwardCan you assist me with FIFO, LIFO, and the Waited Average Cost? I would love to see how you did the math when getting the cost of goods sold and the ending inventory. I am most confused about the waited average cost method. Thank youarrow_forwardWhen inventory unit costs are increasing: Group of answer choices a)FIFO will result in higher ending inventory than will LIFO b)LIFO will result in higher ending inventory than will FIFO c)FIFO will result in higher cost of goods sold than will LIFO d)FIFO will result in higher net income and lower ending inventory than LIFOarrow_forward
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