1. The primary reason for the popularity of LIFO is that it:
A. Provides better matching of physical flow and cost flow.
B. Saves income taxes currently.
C. Simplifies recordkeeping.
D. Provides a permanent reduction of income taxes.
2. The use of LIFO during a long inflationary period can result in:
A. A net increase in income tax expense.
B. An inflated balance sheet.
C. Significant cash flow advantages over FIFO.
D. A reduction in inventory turnover over FIFO.
3. The Mateo Corporation’s inventory at December 31, 2013, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following:
▪ Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2013, was received on January 5, 2014.
▪ Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2013, was received on January 3, 2014.
▪ Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer’s location on January 6, 2014.
▪ Merchandise costing $12,000 was being held on consignment by Traynor Company.
What amount should Mateo Corporation report as inventory in its December 31, 2013, balance sheet?
4. Northwest Fur Co. started 2013 with $94,000 of merchandise inventory on hand. During 2013, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.
What is ending inventory assuming Northwest uses the gross method to record purchases?
5. Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?
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