12 Lecture

Which of the following is not a commonly used inventory valuation method? a) FIFO b) LIFO c) Specific identification d) Random selection Answer: d) Random selection

Under which inventory valuation method is the cost of the most recently purchased items used to value inventory? a) FIFO b) LIFO c) Weighted average cost d) Specific identification Answer: b) LIFO

Which of the following is true of the FIFO inventory valuation method? a) It results in the highest cost of goods sold during times of rising prices. b) It results in the lowest net income during times of rising prices. c) It results in the highest gross profit during times of rising prices. d) It is not affected by changes in inventory levels. Answer: c) It results in the highest gross profit during times of rising prices.

Which inventory valuation method assumes that the first items purchased are the first ones sold? a) FIFO b) LIFO c) Specific identification d) Weighted average cost Answer: a) FIFO

Which inventory valuation method results in a higher ending inventory value during times of rising prices? a) FIFO b) LIFO c) Weighted average cost d) Specific identification Answer: a) FIFO

Under the weighted average cost inventory valuation method, how is the weighted average cost calculated? a) By dividing the total cost of inventory by the total number of units. b) By adding the cost of the most recently purchased units to the existing inventory cost. c) By multiplying the cost per unit by the number of units sold. d) By subtracting the cost of goods sold from the total cost of inventory. Answer: a) By dividing the total cost of inventory by the total number of units.

Which inventory valuation method allows for the use of specific costs for specific units of inventory? a) FIFO b) LIFO c) Weighted average cost d) Specific identification Answer: d) Specific identification

Which inventory valuation method is most commonly used for tax purposes in the United States? a) FIFO b) LIFO c) Weighted average cost d) Specific identification Answer: b) LIFO

Which inventory valuation method is most commonly used for financial reporting purposes? a) FIFO b) LIFO c) Weighted average cost d) Specific identification Answer: a) FIFO

How does the choice of inventory valuation method impact a company's financial statements? a) It does not impact the financial statements. b) It can impact the cost of goods sold and net income. c) It can impact inventory levels reported on the balance sheet. d) It can impact the company's cash flow statement. Answer: b) It can impact the cost of goods sold and net income.

What is the purpose of inventory valuation? Answer: The purpose of inventory valuation is to assign a monetary value to a company's inventory for financial reporting purposes.

What are the three most commonly used inventory valuation methods? Answer: The three most commonly used inventory valuation methods are FIFO, LIFO, and weighted average cost.

How does the choice of inventory valuation method impact a company's financial statements? Answer: The choice of inventory valuation method can impact the cost of goods sold and net income reported on the income statement, as well as the inventory levels reported on the balance sheet.

What is the difference between the FIFO and LIFO inventory valuation methods? Answer: The FIFO method assumes that the first items purchased are the first ones sold, while the LIFO method assumes that the last items purchased are the first ones sold.

How does the specific identification inventory valuation method work? Answer: The specific identification method allows for the use of specific costs for specific units of inventory, rather than using an averaged cost.

Which inventory valuation method is most commonly used for tax purposes in the United States? Answer: The LIFO method is most commonly used for tax purposes in the United States.

What is the impact of rising prices on the cost of goods sold under the FIFO and LIFO inventory valuation methods? Answer: Under the FIFO method, the cost of goods sold is lower during times of rising prices, while under the LIFO method, the cost of goods sold is higher.

How is the weighted average cost inventory valuation method calculated? Answer: The weighted average cost is calculated by dividing the total cost of inventory by the total number of units.

How does the ABC analysis method relate to inventory valuation? Answer: The ABC analysis method is a method of classifying inventory based on its relative importance, which can impact the valuation of inventory.

What is the importance of proper inventory valuation for businesses? Answer: Proper inventory valuation is important for accurate financial reporting, which can impact a company's profitability and cash flow.