60) Buy & Large, Inc.’s inventory activity in May was:
Inventory, May 1
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100 units @ $7 each
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Purchase on account, May 7
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300 units @ $6 each
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Sale on account, May 18
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120 units @ $12 each
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Required:
1. What is the cost of goods sold for the May 18 sale using the weighted average (WA) cost flow method?
2. What is the cost of goods sold for the May 18 sale using the FIFO cost flow method?
3. Select which method is correct by choosing WA or FIFO, or Same, if both methods give the same result.
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Which method results in the:
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WA
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FIFO
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Same
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a.
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higher net income?
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b.
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lower current assets?
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c.
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lower
Accounts receivable
on the Balance Sheet?
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d.
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higher
Accounts payable
on the Balance Sheet?
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61) Match the statements below with the appropriate cost flow method. Some methods may be used more than once and others may not be used at all.
F = FIFO
L = LIFO
W = Weighted average method
S = Specific identification method
______ 1. the cost flow method that reduces taxable income, relative to the other methods, in a period of rising inventory costs
______ 2. is based on a calculation that divides the cost of goods available for sale by the number of units available for sale
______ 3. would be the best method if inventory costs are rising and the objective is to maximize net income
______ 4. tends to be used only in low-volume businesses
______ 5. matches the oldest costs with sales on the income statement
______ 6. results in the highest current asset balance, relative to the other methods, in a period of rising prices
62) Match the statements below with the appropriate cost flow method. Some methods may be used more than once, and others may not be used at all.
F = FIFO
L = LIFO
W = Weighted average method
S = Specific identification method
______ 1. matches the costs of the most recently purchased items with sales on the income statement
______ 2. results in the lowest net income in a period of rising inventory purchase costs
______ 3. is difficult to apply when the inventory items are identical
______ 4. results in the highest net income in a period of rising inventory purchase costs
______ 5. results in the highest ending inventory value in a period of falling prices