A Company Just Starting Business Purchased Three Merchandise Inventory Items

question 6

Multiple Choice

A company just starting business purchased three merchandise inventory items at the following prices: first purchase $510; second purchase $550; third purchase $590. If two items were sold during the period and the company used the LIFO costing method, the gross profit for the period would be how much greater or less than if the FIFO costing method had been used?

• A) Gross profit would be $80 greater.
• B) Gross profit would be $80 less.
• C) Gross profit would be the same.
• D) Gross profit would be $40 greater.

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Definitions:

Account Balances

The amount of money in an account at any given time, which can reflect credits and debits from transactions.

Reacquired Shares

Stocks that were issued and subsequently bought back by the issuing company, reducing the number of shares outstanding on the open market.

Common Stock

Equity ownership in a corporation, representing a claim on part of the corporation's earnings and assets.

Journalize Transactions

The process of recording business transactions in the journal as part of the accounting cycle.