After each sale

1

Q 1 Under a periodic inventory system ending
inventory and cost of goods sold are determined

• After each sale
• After each purchase and sale
• At the end of the accounting period
• Dont know

2
Q 2 Which of the following is not an advantage
of the perpetual system?

• Useful to determine shrinkage
• Cheap to use in a manual as well as a
  computerized system
• Useful to determine reorder needs
• Timely updates of inventory balances and cost of
  goods sold

3
Shrinkage

• Is not a problem in a perpetual system
• Must be reported as a separate loss on the income
  statement
• May be treated as part of cost of goods sold
  expense
• Can be deducted as an expense only if it has been
  reported to the police

4
Beg. inventory 20 units _at_ 5 100
Purchases 60 units _at_ 20 1,200Purchases
10 units _at_ 30 300Sales 70 units. FIFO
ending inventory is

• 100
• 200
• 300
• 250
• 500

5
Beg. inventory 20 units _at_ 5 100
Purchases 60 units _at_ 20 1,200Purchases 10
units _at_ 30 300Sales 70 units

• Using LIFO ending inventory will be
• 100
• 200
• 300
• 250

6
Beg. inventory 20 units _at_ 5 100 Purchases
60 units _at_ 20 1,200Purchases 10 units _at_ 30
300Sales 70 units

• Under LIFO cost of goods sold will be
• 1,200
• 1,244
• 1,400
• 1,500

7
Q 6 LIFO

• Always results in lower income taxes than FIFO
• Is used to show higher net income
• Is not permitted unless the actual flow of
  inventory is last in, first out
• Results in higher cost of goods sold during
  inflation

8
Which of the following statements is false? LIFO

• Must be used for financial reporting purposes, if
  it is used for tax purposes
• May result in income manipulation
• Is a method of cheating on income taxes
• Requires extensive record keeping
• Is not permitted in all countries

9
LIFO Liquidation

• Occurs because management does not purchase
  enough inventory
• May be involuntary
• May be deliberate to manipulate earnings
• All of the above

10
Exercise 15

• Determine ending inventory using FIFO
• Determine ending inventory using LIFO
• Determine ending inventory using Average Cost

11
Dollar Value LIFO

• Is used to manipulate earnings
• Requires the use of inventory specific pools
• Eliminates the need to determine if there have
  been increases or decreases in total inventory
• Requires the use of price level indexes

12
W Co. uses value LIFO. Base year inventory
(index 100) cost 500,000. On 12/31/06,
inventory on hand had a current cost 577,500
and base year cost of 525,000. The price
level index on 12/31/06 is

• .909
• 1
• 1.1
• 1.155

13
W Co. uses value LIFO. Base year inventory
(index 100) cost 500,000. On 12/31/06,
inventory on hand had a current cost 577,500
and base year cost of 525,000. The price
level index on 12/31/06 is 1.1. value LIFO
ending inventory on 12/31/06 is

• 525,000
• 527,500
• 552,500
• 577,500

14
Exercise 25

• Determine ending value LIFO inventory for 2002
• Determine ending value LIFO inventory for 2003
• Determine ending value LIFO inventory for 2004

15
Answers

• C
• B
• C
• E
• A
• D
• D
• C
• D

• A. 18,000(FIFO)
• B. 13,800 (LIFO)
• C. 15,858 (Average)
• D
• C
• B
• 111,500
• 90,500
• 95,700