Which of the following statements is correct when inventory prices are increasin

Question

Which of the following statements is correct when inventory prices are increasing?

LIFO will result in lower net income and a higher inventory valuation than will FIFO. LIFO will result in higher net income and lower inventory valuation than will FIFO. FIFO will result in lower net income and a lower inventory valuation than will LIFO. FIFO will result in higher net income and a higher inventory valuation than will LIFO.

A corporation has provided the following information about one of their products:




During the year, 400 units were sold.
What is ending inventory using the average cost method? $48,000 $64,000 $50,000 $62,000

Which of the following statements is false? Companies do not have to use the same inventory method for all items of inventory. Companies do not have to consistently use the same inventory costing methods. Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers. A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method. Lauer Corporation uses the periodic inventory system and has provided the following information about one of their laptop computers: During the year, 750 laptop computers were sold. What was ending inventory using the FIFO cost flow assumption? Lauer Corporation uses the periodic inventory system and has provided the following information about one of their laptop computers: During the year, 750 laptop computers were sold. What was cost of goods sold using the LIFO cost flow assumption? Which of the following statements is correct when inventory prices are increasing?

Explanation / Answer

1. What was ending inventory using FIFO cost flow assumption? $52,500

Ending inventory ($52,500) = ($1,050 x 50)

2. What was cost of goods sold using the LIFO cost flow assumption? $730,000

Cost of goods sold ($730,000) = (200 x $1,050) + (300 x $1,000) + (200 x $900) + (50 x $800)

3. Which of the following statements is correct when inventory prices are increasing?

FIFO will result in higher net income and a higher inventory valuation than will LIFO.

4. What is ending inventory using the average cost method? $48,000

Average cost ($160) = {(200 x $140) + (400 x $160) + (100 x $200)} / 700 units Ending inventory

($48,000) = Average cost ($160) x 300 units

5. Which of the following statements is false?

Companies do not have to consistently use the same inventory costing methods.

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