L6: Inventory costing method

 In a period of rising prices, which methods will yield the higher net income and lower ending inventory cost?

• WA, WA

• FIFO    FIFO

• FIFO, WA

• WA    FIFO

An overstatement of the ending inventory in 2014 will have the following effects on cost of goods sold and net income in 2014:

• overstated, understated

• overstated, overstated

• understated,   understated

• understated    overstated

Which of the following states that businesses should use the same accounting methods and procedures from period to period?

• Accounting conservatism

• Consistency characteristic

• Disclosure principle

• Materiality concept

Floormart uses a perpetual inventory system. By year end, inventory that cost $26,000 can only be sold for $24,000. The journal entry required, if any, will include a

• debit to Cost of Goods Sold for $2,000.

• debit to Inventory for $24,000.

• debit to Inventory for $2,000.

• No journal entry is required.

When inventory prices are rising, the FIFO method will generally yield a gross margin that is:

• less than the weighted average method.

• equal to the gross margin of the weighted-average method.

• higher than the weighted-average method.

• FIFO does not generally cause a gross margin that is different from that of any other costing method.

January 1 inventory balance 100 units at $10 per unit

March 2 purchase 50 units at $11 per unit

July 8 purchase 80 units at $10 per unit

November 15 purchase 30 units at $12 per unit

On December 31, a physical count reveals 80 units in ending inventory.

Assuming all goods are sold throughout the year for $17 per unit, gross margin calculated under the periodic FIFO method would be:

• $1,210.

• $1,260.

• $1,150.

• $900.