CPA Business Environment and Concepts (BEC) : Periodic vs Perpetual Inventory Systems
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Example Questions
Example Question #1 :Periodic Vs Perpetual Inventory Systems
Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
Weighted average
Moving average
FIFO
LIFO
FIFO
Using the FIFO method during a period of rising prices would account for the inventory that is the least expensive from the warehouse, thus maximizing profit.
Example Question #1 :Financial Management Process
Under US GAAP, during periods of inflation, a perpetual system would result in the same dollar amount of ending inventory as a periodic system under which of the following valuation methods?
Neither
LIFO
FIFO
LIFO and FIFO
FIFO
Only under FIFO would the use of a perpetual system result in the same dollar amount of ending inventory as a periodic system.
Example Question #1 :Financial Management Process
A corporation issues quarterly interim financial statements and uses the lower cost or market method to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements?
Inventory losses generally should be recognized in the interim statements
Only the cost method of valuation should be used
Gains from valuations in previous interim periods should be fully recognized
Temporary market declines should be recognized in the interim statements
Inventory losses generally should be recognized in the interim statements
Using the IFRS lower of cost or market process would entail recognizing inventory losses during interim periods.
Example Question #1 :Financial Management Process
What is the cost of ending inventory given the following factors? Beginning Inventory = $5,000 Total Production Costs = $60,000 Cost of Goods Sold = $55,000 Direct Labor = $40,000.
$45,000
$10,000
$5,000
$50,000
$10,000
$5,000 + $60,000 - $55,000 = $10,000
Example Question #5 :Financial Management Process
What was ABC company's cost of goods manufactured if cost of goods sold is $43,000, ending finished goods inventory is $21,000, beginning finished goods inventory is $16,000 and net income is $19,000.
$38,000
$37,000
$50,000
$48,000
$48,000
COGM = $43,000 + $21,000 - $16,000 = $48,000
Example Question #6 :Financial Management Process
The moving average method requires ____, while the weighted average method requires ______.
LIFO, FIFO
Periodic, perpetual
Perpetual, periodic
FIFO, LIFO
Perpetual, periodic
Both the weighted average method and moving average methods are alternatives to LIFO and FIFO.
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