Barker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20.00 cash. Barker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income tax,:

A. cash flow from operating activities is $11.00 assuming a weighted average cost flow.

B. cash flow from operating activities is $12.00 assuming a FIFO cost flow.

C. cash flow from operating activities is $10.00 assuming a LIFO cost flow.

D. the amount of cash flow from operating activities is not affected by the cost flow method.

Question

Alissa Grant

Business

21 March, 11:00

Barker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20.00 cash. Barker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income tax,:

A. cash flow from operating activities is $11.00 assuming a weighted average cost flow.

B. cash flow from operating activities is $12.00 assuming a FIFO cost flow.

C. cash flow from operating activities is $10.00 assuming a LIFO cost flow.

D. the amount of cash flow from operating activities is not affected by the cost flow method.

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Answers (1)

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Mathew Park · Answer 1

the amount of cash flow from operating activities is not affected by the cost flow method.

Explanation:

Cost flow method is defined as a method of assigning cost to inventory and cost of goods sold. There are various assumptions that are made to determine the goods still in inventory and those that have been sold.

Average cost flow takes all cost from goods sold from inventory and assigns them to the goods.

In this instance using any cost flow method there will be an outflow of $38 for purchase of the items and an inflow of $30.