#1 Croder Inc. purchases inventory for $5000 and incurs shipping costs of $100. To record this...
#1
Croder Inc. purchases inventory for $5000 and incurs shipping costs of $100. To record this transaction, Croder debits Inventory for $5000, debits selling expenses for $100 and credits cash for $5,100. Which of the following statements is correct?
A) Net Income is understated
B) All accounts are accurately stated
C) Revenues are understated
D) Assets are overstated
#2
Which of the following statements is incorrect regarding LIFO and LIFO?
A) In a period of increasing costs, assets will be greater under LIFO than FIFO
B) In a period of increasing costs, net income will be greater under FIFO than LIFO
C) In a period of decreasing costs, FIFO will result in lower total assets than LIFO
D) In a period of decreasing costs, LIFO will result in greater net income than FIFO
Homework Answers
| 1) |
| A) Correct Answer |
| In this transaction shpping cost is related to purchase, hence it is needs to add with the inventory |
| Here it is debited with the entire shipping cost as selling expense, hence it will decrease the net income. |
| B) All accounts are accurately stated |
| Wrong Answer - Shipping expense is not a selling expense it is needs add with direct expense and part of inventory cost |
| c) Revenue are under stated |
| Wrong Answer - In this case nothing is debited with the revenue account, so it is not understating any revenue. |
| D) Assets are overstated |
| Wrong Answer - Acutally the assets are under stated, the shipping expense needs to add with the inventory cost. |
| 2) |
| A) Correct Answer - Statement is Incorrect |
| Under LIFO the stock is from the purchase of the first lot. Hence the cost will increase the inventory value will decrease. |
| In this case the value of assets lower the under LIFO then FIFO |
| B) Wrong Answer |
| Statement is Correct - cost is increasing, under FIFO the inventory value is greater than LIFO so the net income will increase |
| c) Wrong Answer |
| Stement is Correct - Cost is decreasing the value of inventory will decrease hence FIFO will result lower the total assets than LIFO |
| D) Wrong Answer |
| Statement is correct - Cost will decrese the value of inventory will increase under LIFO, hence the LIFO will result the greater income |
| than FIFO |
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#1
Croder Inc. purchases inventory for $5000 and incurs shipping
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