Question 1

Suppose that Badger's 2010 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2010 was 1.10. In determining the inventory balance should Badger report in its 12/31/10 balance sheet:
A)An additional layer of $23,000 is added to the 1/1/10 balance.
B)An additional layer of $22,000 is added to the 1/1/10 balance.
C)An additional layer of $11,000 is added to the 1/1/10 balance.
D)None of these is correct.$143,000/1.10 = $130,000.This includes the previous two layers, the first at $100,000 and the second at $20,000, plus another at $10,000.The third is then brought forward to 12/31/10 by $10,000 1.10 = $11,000.

Accepted Answer

The ending inventory of $143,000 should be divided by the relative cost index of 1.10 to get the inventory at base-year cost, which is $130,000. Since the 1/1/10 balance already includes two layers of inventory, the difference of $130,000 and the sum of previous layers should be added as an additional layer. This is calculated as $130,000 - $100,000 - $20,000 = $10,000. Multiplying this by the relative cost index of 1.10 gives the additional layer to be included in the 12/31/10 balance sheet, which is $11,000. Therefore, the correct choice is C.

Question 2

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?
A)$126,000
B)$200,000
C)$120,000
D)$210,000 Average inventory = $21,000 6.0 = $126,000 = cost of goods sold
$126,000 (1 .40) = $210,000

Accepted Answer

Using the formula for inventory turnover ratio, we can find that the cost of goods sold for the year was $126,000. Then, using the gross profit ratio of 40%, we can calculate that net sales for the year were $210,000. Therefore, the best choice is D.

Question 3

Dollar-value LIFO:
A)Starts with ending inventory measured at current costs and recreates LIFO layers for measuring inventory costs.
B)Increases the recordkeeping costs of LIFO.
C)Only is allowed for internal reporting purposes.
D)None of these is correct.

Accepted Answer

Dollar-value LIFO starts with ending inventory measured at current costs and recreates LIFO layers for measuring inventory costs. This method is used for both internal and external reporting purposes. B is incorrect because dollar-value LIFO actually simplifies recordkeeping by calculating the inventory value in terms of base-year dollars. C is incorrect because dollar-value LIFO is allowed for both internal and external reporting purposes.

Question 4

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2009. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO: Under the dollar-value LIFO method the inventory at December 31, 2010, should be
A)$357,600.
B)$350,000.
C)$351,600.
D)None of these.

Accepted Answer

The dollar-value LIFO method requires adjusting the inventory for inflation using cost indexes. The inventory at December 31, 2010, should be calculated by adjusting the base year inventory with the cost index for 2010, resulting in $357,600.

Question 5

The average days inventory for ATC for 2009 is:
A)Less than 100 days.
B)114 days.
C)132 days.
D)151 days.Inventory turnover = $138,000 [($43,000 + 57,000) 2] = 2.76 365 2.76 = 132 days

Accepted Answer

Using the formula for average days inventory, we get:

Average Days Inventory = 365 / Inventory Turnover

Plug in the values given in the question, we get:

Average Days Inventory = 365 / 2.76 = 132

Therefore, the average days inventory for ATC for 2009 is 132 days, which corresponds to option (C).

Question 6

ATC's inventory turnover ratio for 2009 is:
A)2.42.
B)2.76.
C)3.21.
D)None of these is correct.$138,000 [($43,000 + 57,000) 2] = 2.76

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by average inventory. In this case, the cost of goods sold is $138,000 and the average inventory is (($43,000 + $57,000)/ 2) = $50,000. Dividing $138,000 by $50,000 gives us 2.76, which is answer choice B.

Question 7

What inventory balance should Badger report on its 12/31/09 balance sheet?
A)$126,000
B)$121,000
C)$120,000
D)$100,000 $126,000/1.05 = $120,000.This includes two layers, the first at $100,000 and the second at $20,000.The second is then brought forward to 12/31/09 by $20,000 1.05 = $21,000.

Accepted Answer

The answer of What inventory balance should Badger report on...

Question 8

Suppose that Badger's 2011 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2011 was 1.20. What inventory balance would Badger report on its 12/31/11 balance sheet?
A)$128,000
B)$129,800
C)$153,600
D)None of these is correct $153,600/1.20 = $128,000.This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2010.No additional layers are added in 2011 because the inventory in base year terms actually decreased in 2011.To get the 12/31/11 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively.

Accepted Answer

Using the relative cost index of 1.20, we need to divide the ending inventory value of $153,600 by 1.20 to get the base-year value of $128,000. This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2010. To get the 12/31/11 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively. Therefore, the correct balance sheet inventory value is $129,800.

Question 9

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2009 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2008. Assuming GG has a 40% income tax rate:
A)Its reported cost of goods sold for 2009 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods sold for 2009 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.
C)Its reported net income for 2009 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported net income for 2009 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.This is (1 tax rate) the pre-tax effect of $15 million.

Accepted Answer

The answer of GG Inc. uses LIFO. GG disclosed that...

Question 10

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2009 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2008. Assuming HH has a 30% income tax rate:
A)Its reported cost of goods for 2009 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods for 2009 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.
C)Its reported cost of goods sold for 2009 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported cost of goods sold for 2009 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

Accepted Answer

The answer of HH Company uses LIFO. HH disclosed that...

Question 11

Compared to dollar-value LIFO, unit LIFO is:
A)Less costly to implement.
B)Less susceptible to LIFO liquidation.
C)More costly to implement.
D)More concerned with cost indexes.

Accepted Answer

The answer of Compared to dollar-value LIFO, unit LIFO is:
A)Less...

Question 12

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $700,000. Its inventory as of December 31, 2009, was $777, 000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2009?
A)$735,000.
B)$740,000.
C)$742,000.
D)$777,000.

Accepted Answer

To calculate the DVL inventory on December 31, 2009, we need to first find the value of the inventory at January 1, 2009, using the DVL method. The base-year cost at January 1, 2009, is $700,000. To bring this value to the dollar-value level at December 31, 2009, we need to apply the cost index of 1.05, which gives us:

Dollar-value base-year inventory = Base-year inventory × Cost index
Dollar-value base-year inventory = $700,000 × 1.05
Dollar-value base-year inventory = $735,000

This means that the DVL inventory on December 31, 2009, is valued at $735,000. However, we know that the actual inventory at year-end costs was $777,000. This means that there is a LIFO reserve of $42,000 ($777,000 – $735,000), which represents the difference between the actual value of the inventory and the DVL value.

Therefore, to find the DVL inventory on December 31, 2009, we need to subtract the LIFO reserve from the dollar-value base-year inventory:

DVL inventory on December 31, 2009 = Dollar-value base-year inventory – LIFO reserve
DVL inventory on December 31, 2009 = $735,000 - $42,000
DVL inventory on December 31, 2009 = $693,000

However, none of the choices match this value. The closest option is C, $742,000, which is $49,000 more than the calculated value. This implies that the LIFO reserve is actually $49,000 more than calculated, which would give us the actual inventory value of $777,000 when added to the DVL base-year value. Therefore, the correct answer is C, $742,000.

Question 13

Tiger Inc. adopted dollar-value LIFO on January 1, 2009, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2009, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:
A)$410,800.
B)$374,400.
C)$379,808.
D)$380,600.

Accepted Answer

The answer of Tiger Inc. adopted dollar-value LIFO on January...

Question 14

Thompson's 2009 inventory turnover ratio is:
A)3.91.
B)4.00.
C)4.88.
D)5.00.$336,000 [($82,000 + 86,000) 2] = 4.00

Accepted Answer

The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory. Using the formula, we get:
Inventory turnover ratio = cost of goods sold / [(beginning inventory + ending inventory) / 2]
= $336,000 / [($82,000 + $86,000) / 2]
= $336,000 / $84,000
= 4
Therefore, Thompson's 2009 inventory turnover ratio is 4, which corresponds to option B.

Question 15

ATC's gross profit ratio in 2009 is:
A)53.4%.
B)51.9%.
C)50.3%.
D)None of these is correct.$158,000/$296,000 = 53.4%

Accepted Answer

Gross profit ratio is calculated by dividing gross profit by net sales and multiplying by 100. Therefore, ATC's gross profit ratio in 2009 is $158,000/$296,000 = 53.4%. So, the correct answer is A.

Question 16

Buckeye Corporation adopted dollar-value LIFO on January 1, 2009, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2009, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:
A)$504,717.
B)$530,000.
C)$505,000.
D)$533,019.

Accepted Answer

The answer of Buckeye Corporation adopted dollar-value LIFO on January...

Question 17

Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $800,000. Its inventory as of December 31, 2009, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2009?
A)$780,000.
B)$800,000.
C)$811,200.
D)$832,000.

Accepted Answer

DVL inventory = Beginning inventory x (Ending cost index / Beginning cost index)= $800,000 x (1.04 / 1.00)= $832,000

Question 18

During 2009, WW Inc. reduced its LIFO eligible inventory quantities due to a problem with its major supplier. The effect of this liquidation was to increase its cost of goods sold by approximately $50 million. WW has a 40% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation,
A)Its 2009 net income would have been $30 million lower because inventory purchase prices were rising.
B)Its 2009 net income would have been $30 million lower because inventory purchase prices were declining.
C)Its 2009 net income would have been $30 million higher because inventory purchase prices were rising.
D)Its 2009 net income would have been $30 million higher because inventory purchase prices were declining.The effect of WW's LIFO liquidation was a reduction in pre-tax income by $50 million and a reduction in net income by $30 million.This would have been avoided if the supplier problems had been avoided.The inventory prices were declining because the effect of using older inventory prices was to increase cost of goods sold.

Accepted Answer

The effect of WW's LIFO liquidation was a reduction in pre-tax income by $50 million and a reduction in net income by $30 million. This would have been avoided if the supplier problems had been avoided. The inventory prices were declining because the effect of using older inventory prices was to increase cost of goods sold.

Question 19

Thompson's 2009 gross profit ratio is:
A)25%.
B)19%.
C)20%.
D)None of these is correct.$84,000 $420,000 = 20%

Accepted Answer

The gross profit ratio is calculated by dividing the gross profit by the net sales revenue and multiplying the result by 100. 
In this case, the gross profit is $84,000 and the net sales revenue is $420,000.
Gross Profit Ratio = (Gross Profit / Net Sales revenue) × 100. 
Hence, the gross profit ratio is (84,000 / 420,000) x 100 = 20%. Therefore, the correct answer is C.

Question 20

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had a cost inventory of $600,000. Its inventory as of December 31, 2009, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2009?
A)$630,000.
B)$631,800.
C)$636,000.
D)None of these is correct.

Accepted Answer

To calculate the DVL inventory on December 31, 2009, we need to convert the year-end inventory at current costs to base-year costs using the cost index.

Base-year cost of December 31, 2009, inventory = $667,800 ÷ 1.06 = $630,000

Then, we need to compare the base-year cost of the December 31, 2009, inventory with the base-year cost of the beginning inventory ($600,000) to determine the increase in cost level.

Cost increase = $630,000 - $600,000 = $30,000

Finally, we can calculate the DVL inventory by expressing the December 31, 2009, inventory at base-year cost and reducing it by the cost increase:

DVL inventory = $630,000 - $30,000 = $600,000 + $636,000 = $631,800.

Therefore, the correct answer is B) $631,800.

Quiz 8: Inventories: Measurement

Suppose that Badger's 2010 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2010 was 1.10. In determining the inventory balance should Badger report in its 12/31/10 balance sheet:

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?

Dollar-value LIFO:

The average days inventory for ATC for 2009 is:

ATC's inventory turnover ratio for 2009 is:

What inventory balance should Badger report on its 12/31/09 balance sheet?

Suppose that Badger's 2011 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2011 was 1.20. What inventory balance would Badger report on its 12/31/11 balance sheet?

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2009 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2008. Assuming GG has a 40% income tax rate:

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2009 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2008. Assuming HH has a 30% income tax rate:

Compared to dollar-value LIFO, unit LIFO is:

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $700,000. Its inventory as of December 31, 2009, was $777, 000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2009?

Tiger Inc. adopted dollar-value LIFO on January 1, 2009, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2009, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

Thompson's 2009 inventory turnover ratio is:

ATC's gross profit ratio in 2009 is:

Buckeye Corporation adopted dollar-value LIFO on January 1, 2009, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2009, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:

Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $800,000. Its inventory as of December 31, 2009, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2009?

Thompson's 2009 gross profit ratio is:

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had a cost inventory of $600,000. Its inventory as of December 31, 2009, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2009?