Chapter 6 - Apply Your Knowledge
Consider the following situations:
a. Inventory costs are increasing, and the company prefers to report high income.
b. Inventory costs have been stable for several years, and you expect costs to remain stable for the
indefinite future. (Give the reason for your choice of method.)
c. Inventory costs are decreasing, and your company's board of directors wants to minimize income taxes.
d. Your company prefers to use an inventory costing method that avoids extremes.
e. Inventory costs are increasing. Your company uses LIFO and is having an unexpectedly good year. It is
near year-end, and you need to keep net income from increasing too much in order to save on income
tax.
f. The supplier of your inventory is experiencing a labor strike, which could make it difficult for you to
obtain inventory. Your income taxes could increase as a result.
a. Inventory costs are increasing, and the company prefers to report high income. Use FIFO
Part 2
b. Inventory costs have been stable for several years, and you expect
costs to remain stable for the indefinite future. (Give the reason for
your choice of method.)
Any method, they all
produce the same results.
Part 3
c. Inventory costs are decreasing, and your company's board of directors wants to
minimize income taxes. Use FIFO
Part 4
d. Your company prefers to use an inventory costing method that avoids
extremes. Use average cost
Part 5
e. Inventory costs are increasing. Your company uses LIFO and is having an
unexpectedly good year. It is near year-end, and you need to keep net income
from increasing too much in order to save on income tax.
Buy inventory
later in the year.
Part 6
f. The supplier of your inventory is experiencing a labor strike, which could
make it difficult for you to obtain inventory. Your income taxes could increase
as a result.
Company is using
LIFO
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