During a period of increasing prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?

Question

BlackTom AI · Accepted Answer

When prices are rising, the way a company prices its ending inventory affects the balance sheet value differently across methods.
Option 1: specific identification. This method tracks each item's actual cost. The ending inventory value equals the actual costs of the items on hand, which could be high or low depending on which items remained. It does not inherently minimize ending inventory unless specifically matching to older, cheaper items, so it does not consistently produce the lowest balance sheet amount during inflationary periods.
Option 2: average cost method. This method assigns a weighted average cost to all units available for sale. Under rising prices, the ending inventory carries this average cost, which sits between the high and low costs of the layers. It tends to yield a middle-ground inventory value, not the absolute lowest.
Option 3: LIFO method. Last-In, First-Out assumes the most recently acquired (and typically higher-priced during inflation) items are sold first, leaving older, cheaper costs in ending inventory. This tends to depress the ending inventory balance on the balance sheet during periods of rising prices, making it the lowest among the common methods in such scenarios.
Option 4: FIFO method. First-In, First-Out assigns the oldest costs to cost of goods sold, leaving the newer, higher costs in ending inventory during inflation. Consequently, FIFO generally produces a higher ending inventory value than LIFO in a period of rising prices, not the lowest.
Hence, when prices are increasing, the inventory method that typically yields the lowest balance sheet amount for ending inventory is the one that leaves the oldest, cheaper costs in ending inventory, which corresponds to LIFO in most inflationary contexts.

ACCT2200W04 Final- Requires Respondus LockDown Browser

During a period of increasing prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?

查看解析

登录即可查看完整答案

类似问题

If closing stock is understated what affect will this have on the Profit and loss Statement?

The inventory data for an item for November are: Nov. 1 Inventory 20 units at $19 4 Sold 10 units 10 Purchased 30 units at $20 17 Sold 20 units 30 Purchased 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

During a period of consistently rising prices, the method of inventory that will result in reporting the smallest cost of goods sold is

Companies using LIFO are required to disclose the amount at which inventory would have been reported had the company used FIFO. The difference between LIFO and FIFO inventories is called the LIFO reserve.

Smith Company purchases $60,000 of inventory during the period and sells $18,000 of it for $30,000. Beginning of the period inventory was $3,000. What is the company’s inventory balance to be reported on its balance sheet at year end?

In general, in a period of rising prices, FIFO produces higher gross profits than LIFO.

Question21 The book value of inventory at initial recognition is: A$ 2,200,000 A$ 2,600,000 A$ 3,000,000 A$ 2,800,000 A$ 2,400,000 ResetMaximum marks: 1 Unflag question undefined

Question11 Using the area-of-interest method, the book value of inventory as of 30 June 2022 is: 4,100,000 2,100,000 2,000,000 820,000 3,280,000 ResetMaximum marks: 1 Unflag question undefined

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

ACCT*2200*W04 Final- Requires Respondus LockDown Browser

During a period of increasing prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?

查看解析

登录即可查看完整答案

类似问题

If closing stock is understated what affect will this have on the Profit and loss Statement?

The inventory data for an item for November are: Nov. 1 Inventory 20 units at $19 4 Sold 10 units 10 Purchased 30 units at $20 17 Sold 20 units 30 Purchased 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

During a period of consistently rising prices, the method of inventory that will result in reporting the smallest cost of goods sold is

Companies using LIFO are required to disclose the amount at which inventory would have been reported had the company used FIFO. The difference between LIFO and FIFO inventories is called the LIFO reserve.

Smith Company purchases $60,000 of inventory during the period and sells $18,000 of it for $30,000. Beginning of the period inventory was $3,000. What is the company’s inventory balance to be reported on its balance sheet at year end?

In general, in a period of rising prices, FIFO produces higher gross profits than LIFO.

Question21 The book value of inventory at initial recognition is: A$ 2,200,000 A$ 2,600,000 A$ 3,000,000 A$ 2,800,000 A$ 2,400,000 ResetMaximum marks: 1 Unflag question undefined

Question11 Using the area-of-interest method, the book value of inventory as of 30 June 2022 is: 4,100,000 2,100,000 2,000,000 820,000 3,280,000 ResetMaximum marks: 1 Unflag question undefined

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

ACCT2200W04 Final- Requires Respondus LockDown Browser