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发表于 2010-4-19 14:58 | 只看该作者

Reading 36: Inventories LOS h习题精选

following, 2010, discuss, explained, face
LOS h: Discuss the reasons that a LIFO reserve might rise or decline during a given period and discuss the implications for financial analysis.

Premier Corp.’s year-end last in, first out (LIFO) reserve was $2,500,000 in 2000 and $2,300,000 in 2001. Premier’s $200,000 decline in the LIFO reserve could be explained by each of the following EXCEPT:

A)
 a LIFO liquidation occurred.
B)
 the LIFO reserve was being amortized.
C)
 declining inventory prices.


A decline in the LIFO reserve occurs when the increasing prices that created the reserve begin declining or when the inventory is liquidated (i.e. less units in inventory at the end of the year than at the beginning). LIFO reserves are not amortized.

 
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honeycfa

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2#
发表于 2010-4-19 14:58 | 只看该作者

In a period of rising prices, LIFO liquidation results in:

A)
 increase in inventory.
B)
 higher earnings.
C)
 lower earnings.


Since older layers of inventory that are liquidated were purchased at lower prices, the cost of goods sold will be lower and earnings will be higher.

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honeycfa

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3#
发表于 2010-4-19 14:59 | 只看该作者

Which of the following is least likely to happen after a last in, first out (LIFO) liquidation in an environment of rising prices?

A)
 Increase gross income.
B)
 Increase cost of goods sold (COGS).
C)
 Increase taxable income.


In a LIFO liquidation, a firm allows inventory to decrease so that it is using lower-cost materials (purchased in the past). This will lower the COGS and increase income and profit. This is one of the ways that a firm’s management can manipulate earnings.

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honeycfa

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4#
发表于 2010-4-19 14:59 | 只看该作者

In periods of falling prices, which of the following statements is TRUE? Compared to FIFO, LIFO results in:

A)

lower COGS, lower taxes and higher net income.

B)

higher inventory balances and lower working capital.

C)

higher inventory balances and higher working capital.



In periods of falling prices, LIFO results in lower COGS, higher taxes, higher net income, higher inventory balances, higher working capital, and lower cash flows compared to FIFO.

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honeycfa

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5#
发表于 2010-4-19 14:59 | 只看该作者

In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:

A)

adjust the income statement, only if such a decline is due to LIFO liquidation.

B)

not make any adjustments.

C)

adjust the income statement, regardless of the reasons for the decline.



A decline in LIFO reserve is due to either falling prices or LIFO liquidations. In the case of LIFO liquidation, the income statement does not reflect the current costs and should be adjusted. In the case of falling prices, the LIFO income statement amounts are current and do not need adjustment.

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honeycfa

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6#
发表于 2010-4-19 14:59 | 只看该作者

LIFO liquidation may result when:

A)

purchases are more than goods sold.

B)

cost of goods sold is less than the available inventory.

C)

purchases are less than goods sold.


For LIFO companies, when more goods are sold than are purchased during a period, the goods held in opening inventory are in included in COGS. This will result in LIFO liquidation.

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honeycfa

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7#
发表于 2010-4-19 15:00 | 只看该作者

Pischke Motors provided you with the following financials:

  • Beginning LIFO reserve $2,484.
  • Cost of goods sold (COGS) using LIFO $3,988.
  • COGS using FIFO $2,004.

What is the ending LIFO reserve?

A)
 $1,984.
B)
 $4,468.
C)
 $500.


Ending LIFO reserve = (LIFO COGS ? FIFO COGS) + Beginning LIFO reserve
= ($3,988 ? $2,004) + $2,484
= $4,468

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honeycfa

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8#
发表于 2010-4-19 15:00 | 只看该作者

Under last in first out (LIFO) accounting during periods of inflation, when a firm sells a greater quantity of its inventory than it produces or acquires, the result is:

A)
 an understatement of the cost of goods sold (COGS).
B)
 an increase in the LIFO reserve.
C)
 lower earnings.


This is a LIFO liquidation which refers to a declining inventory balance (the units available for sale are declining). In this case the prices for goods that are being sold are no longer recent prices and can be many years out of date.  This would make COGS appear to be very low and gross and net profits to be artificially high.

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9#
发表于 2011-2-13 22:23 | 只看该作者
THX

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