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Highest COGS / Net Income

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1. An inventory pricing method in which the oldest costs rarely have an effect on the ending inventory valuation is?

2.Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method How does it affect prices?

During 2007, the first year of operations, Sanders Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

A. Which of the following recording procedures would result in the highest cost of goods sold for 2007?
1. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement
2. Recording purchases at gross amounts

B. Which of the following recording procedures would result in the highest net income for 2007?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement
a. 1
b. 2

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Solution Summary

The solution explains the procedures which would result in highest cost of goods sold / net income

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1. FIFO. In FIFO the earliest units are assumed to be sold first and so the ending inventory would consist of latest units and so the older costs would have no effect on ending inventory

2. In FIFO the earliest units are ...

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