Essay Questions
85. Lowery Co. had one unit in beginning inventory that cost $5.00. Lowery paid cash to purchase two additional inventory items. The first item was purchased at a cost $5.00, and the second at a cost of $6.00. Lowery Co. sold two inventory items for $12.00 each, receiving cash. Based on this information alone, indicate whether each of the following items is true or false.
_____ a) The amount of ending inventory will be $5 assuming the LIFO cost flow was used.
_____ b) Cost of goods sold would be $11 assuming the weighted average cost flow was used.
_____ c) Cash flow from operating activities would be $14 assuming a FIFO cost flow was used.
_____ d) Cash flow from operating activities would be $8 independent of what cost flow assumption was used.
_____ e) The amount of gross margin would be $14 assuming the FIFO cost flow was used.
86. Indicate whether each of the following statements is true or false.
_____ a) The FIFO cost flow method assumes that the company physically rotates inventory so that the oldest inventory is sold first.
_____ b) In a period of rising prices, LIFO gives higher cost of goods sold than FIFO.
_____ c) Under the weighted average cost flow method, the cost per unit of ending inventory is equal to the cost per unit of inventory sold.
_____ d) In a period of declining prices, LIFO will result in lower income tax expense than FIFO.
_____ e) In a period of rising prices, FIFO gives higher ending inventory than LIFO does.