Accounting Game Chapter 6

Which method does the government allow companies to show on financial statements and tax reports?

FIFO

What is the ending inventory if the last 50 lemons are sold?

Zero

How can a company reveal the method it uses to value its inventory?

In the footnotes of the financials

Which of the following best describes the protagonist's attitude towards running a lemonade stand?

They are excited and optimistic about the coming week. Signup and view all the answers

What does the protagonist need to do at the beginning of the new week?

Roll up the earnings into Retained Earnings. Signup and view all the answers

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

To replenish the inventory of raw materials. Signup and view all the answers

Which method of valuing inventory was used in the first part of the week?

FIFO Signup and view all the answers

What was the cost of goods sold for the week using FIFO?

$12.00 Signup and view all the answers

What method of valuing inventory was used in the second part of the week?

LIFO Signup and view all the answers

What was the cost of goods sold for the week using LIFO?

$32.00 Signup and view all the answers

Which method of inventory valuation should a company use if they want to save taxes in an inflationary economy?

LIFO Signup and view all the answers

What is the main difference between FIFO and LIFO Balance Sheets?

Inventory Signup and view all the answers

Which industry has had falling prices over the past few years?

Electronics Signup and view all the answers

What happens to the first (or old) lemons if a company uses the LIFO method of inventory valuation?

They spoil and rot Signup and view all the answers

Which method of valuing inventory does FIFO stand for?

First in, first out Signup and view all the answers

What caused the price of lemons to double?

A freak storm destroyed a lot of the lemon crop Signup and view all the answers

What is the cost of production using FIFO for making a batch of lemonade with 50 lemons?

$10 Signup and view all the answers

What is the purpose of FIFO in valuing inventory?

To ensure that the first lemons purchased are the first ones sold Signup and view all the answers

Which inventory valuation method assumes that the last items purchased are the first ones sold?

LIFO Signup and view all the answers

What is the cost of production using the LIFO method for making a batch of lemonade with 50 lemons and 5 pounds of sugar?

$22.00 Signup and view all the answers

What is the ending inventory value using the LIFO method?

$10.00 Signup and view all the answers

Why does the LIFO method result in lower profit and taxes compared to FIFO?

Because it values ending inventory at higher prices Signup and view all the answers

What are the two methods used to value inventory in the lemonade business?

FIFO and LIFO Signup and view all the answers

Why does a company use the LIFO method of inventory valuation?

To save taxes Signup and view all the answers

What is the purpose of the footnotes section in a company's financials?

To reveal the method used to value inventory and disclose the difference between FIFO and LIFO amounts Signup and view all the answers

What method of valuing inventory was used in the first part of the week?

FIFO Signup and view all the answers

What is the cost of goods sold for the week using FIFO?

$12.00 Signup and view all the answers

What is the purpose of FIFO in valuing inventory?

To assume that the first items purchased are the first ones sold Signup and view all the answers

What happens to the first (or old) lemons if a company uses the LIFO method of inventory valuation?

They are assumed to be sold first Signup and view all the answers

What are the main lessons the protagonist has learned about accounting so far?

The text does not provide specific information about the main lessons the protagonist has learned about accounting. Signup and view all the answers

What is the protagonist's attitude towards running a lemonade stand?

The protagonist is enthusiastic and optimistic about running a lemonade stand. Signup and view all the answers

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

The protagonist needs to replenish the inventory of raw materials for the lemonade stand. Signup and view all the answers

What are the two criteria involved in the choice between FIFO and LIFO?

Tax strategy and direction of prices in the industry. Signup and view all the answers

Explain the difference between FIFO and LIFO balance sheets.

The difference shows up in the inventory on the left side and in earnings on the right side. Signup and view all the answers

Why would companies in industries with falling prices use the FIFO method?

To save taxes. Signup and view all the answers

Can a company switch from FIFO to LIFO without permission from the IRS?

Yes, they can make the switch the first time on their own. Signup and view all the answers

What is the purpose of FIFO in valuing inventory?

The purpose of FIFO is to ensure that the first lemons that came in will be the first lemons that go out or get sold. Signup and view all the answers

What is the cost of production using FIFO for making a batch of lemonade with 50 lemons?

$10.00 Signup and view all the answers

What caused the price of lemons to double?

A freak storm destroyed a lot of the lemon crop. Signup and view all the answers

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

Pappy Parker offers to sell lemons on account and increase the protagonist's credit by $20.00. Signup and view all the answers

What is the difference between FIFO and LIFO in terms of cost of goods sold and ending inventory?

FIFO results in lower cost of goods sold and higher ending inventory, while LIFO results in higher cost of goods sold and lower ending inventory. Signup and view all the answers

What is the main purpose of using the LIFO method in inventory valuation?

The main purpose of using the LIFO method is to save taxes by reporting lower earnings. Signup and view all the answers

Why does the protagonist prefer using FIFO?

The protagonist prefers using FIFO because it gives a better bottom line and higher net profit on paper. Signup and view all the answers

What is the potential disadvantage of using LIFO for inventory valuation?

The potential disadvantage of using LIFO is that it may result in lower net profit and higher taxes due to higher cost of goods sold. Signup and view all the answers

Accounting Game Chapter 6

Questions and Answers

Which method does the government allow companies to show on financial statements and tax reports?

What is the ending inventory if the last 50 lemons are sold?

How can a company reveal the method it uses to value its inventory?

Which of the following best describes the protagonist's attitude towards running a lemonade stand?

What does the protagonist need to do at the beginning of the new week?

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

Which method of valuing inventory was used in the first part of the week?

What was the cost of goods sold for the week using FIFO?

What method of valuing inventory was used in the second part of the week?

What was the cost of goods sold for the week using LIFO?

Which method of inventory valuation should a company use if they want to save taxes in an inflationary economy?

What is the main difference between FIFO and LIFO Balance Sheets?

Which industry has had falling prices over the past few years?

What happens to the first (or old) lemons if a company uses the LIFO method of inventory valuation?

Which method of valuing inventory does FIFO stand for?

What caused the price of lemons to double?

What is the cost of production using FIFO for making a batch of lemonade with 50 lemons?

What is the purpose of FIFO in valuing inventory?

Which inventory valuation method assumes that the last items purchased are the first ones sold?

What is the cost of production using the LIFO method for making a batch of lemonade with 50 lemons and 5 pounds of sugar?

What is the ending inventory value using the LIFO method?

Why does the LIFO method result in lower profit and taxes compared to FIFO?

What are the two methods used to value inventory in the lemonade business?

Why does a company use the LIFO method of inventory valuation?

What is the purpose of the footnotes section in a company's financials?

What method of valuing inventory was used in the first part of the week?

What is the cost of goods sold for the week using FIFO?

What is the purpose of FIFO in valuing inventory?

What happens to the first (or old) lemons if a company uses the LIFO method of inventory valuation?

What are the main lessons the protagonist has learned about accounting so far?

What is the protagonist's attitude towards running a lemonade stand?

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

What are the two criteria involved in the choice between FIFO and LIFO?

Explain the difference between FIFO and LIFO balance sheets.

Why would companies in industries with falling prices use the FIFO method?

Can a company switch from FIFO to LIFO without permission from the IRS?

What is the purpose of FIFO in valuing inventory?

What is the cost of production using FIFO for making a batch of lemonade with 50 lemons?

What caused the price of lemons to double?

Why does the protagonist decide to go to Pappy Parker's neighborhood grocery store?

What is the difference between FIFO and LIFO in terms of cost of goods sold and ending inventory?

What is the main purpose of using the LIFO method in inventory valuation?

Why does the protagonist prefer using FIFO?

What is the potential disadvantage of using LIFO for inventory valuation?

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