Question

Scoring: Your score will be based on the number of correct matches. There is no penalty for incorrect or missing matches. 1) Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items. Clear All Prices are rising; profits are higher with this method. LIFO Prices are rising; cost of goods sold is lower with this method. FIFO Prices are declining; income taxes are higher with this method. Prices are declining; gross margin is higher with this method. 2) Scoring: Your score will be based on the number of correct matches. There is no penalty for incorrect or missing matches. For each transaction, match the type of adjustment that would be required. Clear All Amounts earned but not received from customers are recorded. Deferred expense Magazine subscriptions are delivered during the current period, although customers paid in a previous period. Deferred revenue Interest is incurred on money borrowed from the bank, but not yet paid. Accrued liability The depreciation on office equipment used during the current year is recorded. Accrued asset The cost of commissions to salesmen that has been earned, but not paid, at the end of the accounting period is recorded.

Answer 1

Solution to Question 1:

LIFO :

a) Prices are declining; income taxes are higher with this method.

b) Prices are declining; gross margin is higher with this method.

FIFO :

a) Prices are rising; profits are higher with this method.

b) Prices are rising; cost of goods sold is lower with this method.

Solution to Question 2 :

Deferred Expense

• The depreciation on office equipment used during the current year is recorded.

Deferred Revenue

• Magazine subscriptions are delivered during the current period, although customers paid in a previous period.

​​​​​​Accrued Liability

• Interest is incurred on money borrowed from the bank, but not yet paid.
• The cost of commission to salesmen that has been earned, but not paid, at the end of the accounting period is recorded.

Accrued Asset

• Amounts earned but not received from customers are recorded.

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