Question

he next two questions are based on the following information: Assume that Forrest Company uses the LIFO accounting method. In year X1, Forrest reported the following information: Units Unit Cost Total Cost Beginning Inventory (1/1/X1) 1,000 10 10,000 Purchases (year X1) 2,000 11 22,000 Year X1 Sales 1,500 Ending Inventory (12/31/X1) 1,500 Based on the above information, Forrest Company will report which of the following amounts for its LIFO Inventory on 12/31/X1?

The next two questions are based on the following information: Assume that Forrest Company uses the LIFO accounting method. In year X1, Forrest reported the following information:

	Units	Unit Cost	Total Cost
Beginning Inventory (1/1/X1)	1,000	10	10,000
Purchases (year X1)	2,000	11	22,000
Year X1 Sales	1,500
Ending Inventory (12/31/X1)	1,500

Based on the above information, Forrest Company will report which of the following amounts for its LIFO Inventory on 12/31/X1?

Select one:

a. $15,500

b. $16,000

c. $16,500

d. None of the Above

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This Question relies on information from the preceding question. Assume that on 1/2/X2, Forrest Company decides to switch to the FIFO inventory method. Their argument for the change is that the physical flow of units is more consistent with the FIFO assumption. Assume that on 1/3/X2, Forrest purchased 2,000 units at a cost of $12 each. During year X2, Forrest sold 2,000 units. Based on these assumptions, Forrest's Inventory on 12/31/X2 will be valued at which of the following amounts?

Select one:

a. $15,500

b. $16,500

c. $18,000

d. None of the Above

Question 12

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Which of the following is a true statement about changes in accounting methods under ASC 250?

Select one:

a. ASC 250 requires firms changing their accounting methods to demonstrate that the new method is preferable to the old method.

b. Under ASC 250, firms who fail to establish that their change in accounting methods is preferable violate GAAP.

c. Under ASC 250, firms are required to retroactively apply the new accounting method to prior periods and restate their results for prior periods unless other guidance is applicable.

d. All of the Above

Answer 1

The next two questions are based on the following information: Assume that Forrest Company uses the LIFO accounting method. In year X1, Forrest reported the following information:

	Units	Unit Cost	Total Cost
Beginning Inventory (1/1/X1)	1,000	10	10,000
Purchases (year X1)	2,000	11	22,000
Year X1 Sales	1,500
Ending Inventory (12/31/X1)	1,500

Based on the above information, Forrest Company will report which of the following amounts for its LIFO Inventory on 12/31/X1?

LIFO ( Last in first out ): In this method assign the cost of the newest goods to coat of goods sold and cost of the oldest goods to ending inventory.

Here, Ending Inventory (12/31/X1) is 1500 and its cost per units is the cost of oldest goods per units purchased, which is 10 per units

So,

The Amounts for its LIFO Inventory on 12/31/X1 = 1500 * 10 = $15000

Ans: a. $15,500

This Question relies on information from the preceding question. Assume that on 1/2/X2, Forrest Company decides to switch to the FIFO inventory method. Their argument for the change is that the physical flow of units is more consistent with the FIFO assumption. Assume that on 1/3/X2, Forrest purchased 2,000 units at a cost of $12 each. During year X2, Forrest sold 2,000 units. Based on these assumptions, Forrest's Inventory on 12/31/X2 will be valued at which of the following amounts?

FIFO ( First in first out ): This method recognize older inventory cost in cost of goods sold and more recent (newest ) inventory cost in ending inventory.

Here the ending inventory = opening inventory + purchased during the current period - sales during the period

opening inventory = 1500

purchased during the current period =

	units	Cost per units	Total cost
opening inventory	1500
purchased during the current period	2000	12	24000
sales during the period	2000
So , the Ending inventory (1500+2000 - 2000)	1500

**more recent (newest ) inventory cost in ending inventory. ( follow this )

Newest cost of inventory per units = 12

The Amounts for its FIFO Inventory on 12/31/X2 = 1500 * 12 = $18000

Ans: c. $18,000

Which of the following is a true statement about changes in accounting methods under ASC 250?

Select one:

a. ASC 250 requires firms changing their accounting methods to demonstrate that the new method is preferable to the old method.

b. Under ASC 250, firms who fail to establish that their change in accounting methods is preferable violate GAAP.

c. Under ASC 250, firms are required to retroactively apply the new accounting method to prior periods and restate their results for prior periods unless other guidance is applicable.

d. All of the Above

Ans: d. All of the Above

Under ASC 250, firms are required to retroactively apply the new accounting method to prior periods and restate their results for prior periods unless other guidance is applicable.

Retrospective application is used for changes in accounting principle. Because changes from LIFO to FIFO is a part of changes in accounting principles. When used for changes in accounting principle, the term “retrospective application” or retroactively means the application of a different accounting principle to prior accounting periods as if that principle had always been used. ASC 250 requires firms changing their accounting methods to demonstrate that the new method is preferable to the old method. Under ASC 250, firms who fail to establish that their change in accounting methods is preferable violate GAAP.