Reading 35: Analysis of Inventories - LOS b ～ Q6-11

答案和详解如下：

6.During periods of rising prices and stable or growing inventories, the most informative inventory accounting method for income statement purposes is:

A)   FIFO because it allocates historical prices to cost of good sold (COGS) and provides a better measure of current income.

B)   LIFO because it allocates historical prices to cost of good sold (COGS) and provides a better measure of current income.

C)   weighted average because it allocates average prices to cost of good sold (COGS) and provides a better measure of current income.

D)   LIFO because it allocates current prices to cost of good sold (COGS) and provides a better measure of current income.

The correct answer was D)

LIFO is the most informative inventory accounting method for income statement purposes in periods of rising prices and stable or growing inventories. It allocates the most recent purchase prices to COGS, and thus provides a better measure of current income and future profitability.

7.Which is the preferred inventory method for purposes of analysis and which is the preferred method for reporting cost of goods sold?

A)                                        LIFO     FIFO

B)                                        FIFO     LIFO

C)                                        FIFO     FIFO

D)                                        LIFO     LIFO

The correct answer was B)

                 FIFO                         LIFO

 Best---->\     Inv    /                \  COGS  / <--- Best

               \ COGS  /                   \   Inv   /

8.During inflationary periods, which of the following statements is TRUE? C)  

A)   LIFO will generate lower earnings, but lower after tax cash flows.

B)   FIFO will generate lower earnings, but lower after tax cash flows.

C)   FIFO will generate higher earnings, but lower after tax cash flows.

D)   LIFO will generate higher earnings, but lower after tax cash flows.

The correct answer was C)

During inflation, FIFO will generate higher earnings because cost of goods will be lower than if LIFO was used. However, LIFO will generate higher cash flows since cash outflows for taxes will be lower for LIFO.

9.Assuming inventory levels remain constant during the year and prices have been stable over time, COGS would be:

A)   the same for both LIFO and FIFO.

B)   higher under the average cost than LIFO or FIFO.

C)   higher under the FIFO than LIFO or average cost.

D)   higher under LIFO than FIFO or average cost.

The correct answer was A)

During stable prices inventory levels are the same for both LIFO and FIFO.

10.Jefferson Corp. decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change for the ending inventory and net income?

A)                                        Decreases    Decreases

B)                                        Increases      Increases

C)                                        Increases      Decreases

D)                                        Decreases    Increases

The correct answer was A)

LIFO provides the lowest inventory values and the lowest net income under rising prices because the least expensive purchases are left in inventory and the more expensive purchases flow to COGS which lowers NI.

11.Which of the following statements about inventory accounting is least accurate?

A)   If a U.S. firm uses LIFO for tax reporting it must use LIFO for financial reporting.

B)   During periods of rising prices, FIFO based current ratios will be smaller than LIFO based current ratios.

C)   U.S. GAAP rules require the use lower of cost or market when reporting inventories.

D)   During periods of rising prices, LIFO income will be lower than under FIFO but cash flows will be higher.

The correct answer was B)

During periods of rising prices, FIFO based current ratios will be larger than LIFO based current ratios because the more expensive units (last purchases) are assigned to ending inventory, resulting in greater current assets.