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ACCT1101 - Questions - Chapter 07

This document contains an accounting chapter on inventory valuation methods including LIFO and FIFO. It provides example questions and discussion topics on analyzing the effects of different inventory methods when costs are rising or falling. Specifically, it asks the student to complete tabulations using perpetual inventory to calculate the impact on pretax income, net income, and cash position under LIFO and FIFO when prices are rising and falling. It also discusses interpreting inventory ratios and the impact of errors or cash discounts.

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Zong Zheng Sun
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76 views6 pages

ACCT1101 - Questions - Chapter 07

This document contains an accounting chapter on inventory valuation methods including LIFO and FIFO. It provides example questions and discussion topics on analyzing the effects of different inventory methods when costs are rising or falling. Specifically, it asks the student to complete tabulations using perpetual inventory to calculate the impact on pretax income, net income, and cash position under LIFO and FIFO when prices are rising and falling. It also discusses interpreting inventory ratios and the impact of errors or cash discounts.

Uploaded by

Zong Zheng Sun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ACCT1101 

– Introduction to Financial Accounting                                                                                          Chapter 7 

Assignment Questions (P7‐1, P7‐2, P7‐4) 
 
 
P7‐1 Analyzing Items to Be Included in Inventory 
 
 

 
ACCT1101 – Introduction to Financial Accounting                                                                                          Chapter 7 
 
 
P7‐2 Analyzing the Effects of Four Alternative Inventory Methods 
 
 
Kirtland Corporation uses a perpetual inventory system. At the end of the annual accounting period,
December 31, the accounting records for the most popular item in inventory showed the following:

Assume that 160 units and 700 units were sold on February 14 and August 15 respectively.

   
 
ACCT1101 – Introduction to Financial Accounting Chapter 7
 
P7‐4 Evaluating the LIFO and FIFO Choice When Costs Are Rising and Falling 
 
 

 
 

 
 
 
Required:
1. Complete the preceding tabulation for each situation. In Situations A and B (prices rising), assume
the following: beginning inventory, 300 units at $11 = $3,300; purchases, 400 units at $12 = $4,800.
In Situations C and D (prices falling), assume the opposite; that is, beginning inventory, 300 units at
$12 = $3,600; purchases, 400 units at $11 = $4,400. Use perpetual inventory procedures.
2. Analyze the relative effects on pretax income and net income as demonstrated by requirement (1)
when prices are rising and when prices are falling.
3. Analyze the relative effects on the cash position for each situation.
4. Would you recommend FIFO or LIFO? Explain.

 
 
 
 
 

 
 
ACCT1101 – Introduction to Financial Accounting Chapter 7
 
Discussion Questions (M13‐1, M13‐2, E7‐12, E7‐15, E7‐16, E7‐22) 
 

M13‐1 Inferring Financial Information Using Component Percentages 
 

 
 
 
 
M13‐2 Inferring Financial Information Using Component Percentages 
 

 
 
 
 
E7‐12 Reporting Inventory at Lower of Cost or Net Realizable Value 
 

 
 
ACCT1101 – Introduction to Financial Accounting Chapter 7
 
 
E7‐15 Analyzing and Interpreting the Impact of an Inventory Error 
 

 
 
 
 
E7‐16 Analyzing and Interpreting the Inventory Turnover Ratio 
 

 
 

 
 
ACCT1101 – Introduction to Financial Accounting Chapter 7
 
 
E7‐22 Recording Sales and Purchases with Cash Discounts 
 

 
 
 

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