Inventories (quizlet)

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1. Assuming rising prices, which cost FIFO 15. In a deflationary LIFO

method will result in higher environment, which
inventory? cost flow method will
have lower COGS?
2. Ending inventory equation Beginning Inventory +
FIFO or LIFO?
Purchases - COGS
16. In inflationary LIFO
3. FIFO Cost Flow Method First item purchased
environment, which
assumed to be first
cost flow method has
item sold; inventory
higher COGS? FIFO
valued based on most
or LIFO?
recent purchases
17. In inflationary FIFO
4. For which industries is it allowable Producers and dealers
environment, which
for firms to report inventory of commodity-like
cost flow method has
above historical cost? products; reported at
higher gross profit?
NRV
FIFO or LIFO?
5. How does an inventory write- Increases; (Rev /
18. LIFO Cost Method Item purchased most recently
down affect asset turnover? Assets)
assumed to be first item sold
6. How does an inventory write Decreases current and
19. LIFO Liquidation Older, low cost inventory is sold
down affect current assets? total assets
resulting in a lower cost of goods
7. How does an inventory write- Decreases (CA / CL) sold, higher net income, and higher
down affect current ratio? taxes.
8. How does an inventory write- Increases; (COGS / 20. LIFO Reserve the amount by which LIFO inventory
down affect inventory turnover avg. inventory) is less than FIFO inventory
ratio?
21. Lower of cost or A basis whereby inventory is stated
9. How to compare LIFO firm to FIFO - Add LIFO reserve to market at the lower of either its cost or its
firm? LIFO inventory on B/S market value as determined by
- Increased retained current replacement cost.
earnings component of
22. Net realizable value equal to expected sales price less
shareholders' equity by
(NRV) the estimated selling costs and
LIFO reserve
completion costs
10. How to convert LIFO cogs to FIFO FIFO COGS = LIFO
23. Period costs Not capitalized in Inventories
cogs? COGS - (ending LIFO
account; includes: abnormal waste
reserve - beginning
of materials, storage costs,
LIFO reserve)
administrative overhead, selling
11. If a firm changes FROM LIFO to Retrospectively costs
another cost flow method, how
24. Periodic inventory Inventory values and COGS
are changes applied to financial
system determined at end of accounting
statements? Prospective or
period (COGS = Goods available
retrospective?
for sale - ending inventory)
12. If a firm changes TO LIFO from Prospectively
25. Permissable cost flow Specific identification, FIFO, LIFO,
another cost flow method, how
methods under GAAP weighted-average cost
are changes applied to financial
statements? Prospective or 26. Permissable cost flow Specific identification, FIFO,
retrospective? methods under IFRS weighted-average cost
13. If cost exceeds market, is Inventory written down 27. Perpetual inventory Inventory values and COGS
inventory written up or down? to market on B/S system updated continuously
14. If NRV < Inventory, is inventory Inventory is written 28. Product costs capitalized in the Inventories
"written-up" or "written-down"? down to NRV and loss account on B/S; includes: purchase
recognized on I/S cost, conversion cost, other costs
necessary to bring inventory to
present location/condition
29. Required -the cost flow method (LIFO, FIFO, etc) 37. Which cost method is more tax LIFO
Inventory used advantageous?
Disclosures -total carrying value of inventory
38. Which cost method provides most FIFO; because they
-carrying value of inventories reported at
useful measure of ending are an approximate of
fair value less selling costs
inventory? current costs
-the COGS during the period
- Inventory write-downs 39. Which cost method will have a LIFO; higher COGS
- Reversals of inventory writedowns higher inventory turnover ratio? (numerator)
during the period (IFRS only because US 40. Which cost method will have a No effect; inventory
GAAP does not allow reversals) higher quick ratio? not included in quick
- Carrying value of inventories pledged as ratio
collateral
41. Which cost method will result in a FIFO; current asset
30. Specific Each unit sold is matched with the unit's higher current ratio (assuming (inventory) increases
identification actual cost; appropriate when inventory increasing prices)?
cost flow items are not interchangeable, commonly
42. Which cost method will result in FIFO; equity is higher
inventory used with a small number of costly and
lower solvency ratios?
method easily distinguishable items (i.e. jewelry)
43. Which standard-setting body IFRS
31. Under GAAP, Lower of cost or market
allows for write-ups if there a
how is
recovery?
inventory
reported on
B/S?
32. Under IFRS, Lower of cost or net realizable value
how is (NRV)
inventory
reported on
B/S?
33. Weighted -Average cost per unit of inventory
average cost -Divide total COGS available for sale by
method total quantity available for sale
-COGS = average cost per unit * units sold
-Produces numbers between FIFO and
LIFO
34. What is the Lower bound: NRV - gross profit margin
range for Upper bound: NRV
"market" in the
lower cost or
market
valuation
method?
35. When prices FIFO
are falling,
which cost
method will
have higher
COGS?
36. Where are Footnotes of financial statements
inventory
disclosures
found?