ACCT1101 – Introduction to Financial Accounting Chapter 7

Assignment Questions (P7‐1, P7‐2, P7‐4)

P7‐1 Analyzing Items to Be Included in Inventory

ACCT1101 – Introduction to Financial Accounting Chapter 7

P7‐2 Analyzing the Effects of Four Alternative Inventory Methods

Kirtland Corporation uses a perpetual inventory system. At the end of the annual accounting period,
December 31, the accounting records for the most popular item in inventory showed the following:

Feb 14
Aug 15

Assume that 160 units and 700 units were sold on February 14 and August 15 respectively.
ACCT1101 – Introduction to Financial Accounting Chapter 7

P7‐4 Evaluating the LIFO and FIFO Choice When Costs Are Rising and Falling

Required:
1. Complete the preceding tabulation for each situation. In Situations A and B (prices rising), assume
the following: beginning inventory, 300 units at $11 = $3,300; purchases, 400 units at $12 = $4,800.
In Situations C and D (prices falling), assume the opposite; that is, beginning inventory, 300 units at
$12 = $3,600; purchases, 400 units at $11 = $4,400. Use perpetual inventory procedures.
2. Analyze the relative effects on pretax income and net income as demonstrated by requirement (1)
when prices are rising and when prices are falling.
3. Analyze the relative effects on the cash position for each situation.
4. Would you recommend FIFO or LIFO? Explain.

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ACCT1101 – Introduction to Financial Accounting Chapter 7

Discussion Questions (M13‐1, M13‐2, E7‐12, E7‐15, E7‐16, E7‐22)

M13‐1 Inferring Financial Information Using Component Percentages

M13‐2 Inferring Financial Information Using Component Percentages

E7‐12 Reporting Inventory at Lower of Cost or Net Realizable Value

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ACCT1101 – Introduction to Financial Accounting Chapter 7

E7‐15 Analyzing and Interpreting the Impact of an Inventory Error

E7‐16 Analyzing and Interpreting the Inventory Turnover Ratio

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ACCT1101 – Introduction to Financial Accounting Chapter 7

E7‐22 Recording Sales and Purchases with Cash Discounts

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ACCT1101 – Introduction to Financial Accounting Chapter 7

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