Reading 35: Analysis of Inventories - LOS c, (Part 2) ～ Q

答案和详解如下：

6.During periods of rising prices:

A)   LIFO Gross Profit Margin> FIFO Gross Profit Margin.

B)   LIFO Current ratio> FIFO Current Ratio.

C)   LIFO Debt to Equity Ratio> FIFO Debt to Equity Ratio.

D)   LIFO Inventory Turnover < FIFO Inventory Turnover.

The correct answer was C)

FIFO inventory, and therefore FIFO assets and equity, will be higher by the LIFO reserve.

7.During a period of rising prices, the financial statements of a firm using first in, first out (FIFO) reporting, instead of last in, first out (LIFO) reporting would show:

A)   lower total assets and lower net income.

B)   lower total assets and higher net income.

C)   higher total assets and higher net income.

D)   higher total assets and lower net income.

The correct answer was C)

When the FIFO method is used when prices are rising, the cheaper goods in beginning inventory, reflecting earlier purchases, are assigned to COGS (hence, higher income) and the more expensive units (last purchases) are assigned to ending inventory (greater current assets). When the LIFO method is used during a period when prices are rising, the more expensive last purchases are assigned to COGS (hence, lower income) and the cheaper units in beginning inventory and earlier purchases are assigned to ending inventory.

8.During periods of rising prices, which of the following is most likely to occur?

A)   LIFO COGS < FIFO COGS, therefore LIFO net income < FIFO net income.

B)   LIFO COGS > FIFO COGS, therefore LIFO net income < FIFO net income.

C)   LIFO COGS < FIFO COGS, therefore LIFO net income > FIFO net income.

D)   LIFO COGS > FIFO COGS, therefore LIFO net income > FIFO net income.

The correct answer was B)

Under the assumptions of this question and using LIFO, the most expensive units go to COGS, resulting in lower net income.

9.Which of the following is least likely to be a result of using last in, first out (LIFO) as the inventory method during periods of decreasing prices compared to using first in, first out (FIFO)?

A)   Higher taxes.

B)   Higher cash flows.

C)   Higher net income.

D)   Lower COGS.

The correct answer was B)

Using LIFO during periods of declining prices will result in lower cash flows because net income will be higher than if FIFO is used leading to more taxes being paid out.

10.Which inventory method will provide a larger net income during periods of falling prices?

A)   LIFO.

B)   FIFO.

C)   Weighted Average.

D)   Specific Items.

The correct answer was A)

During periods of falling prices last in, first out (LIFO) provides a higher net income than first in, first out (FIFO) or the average cost methods because the items most recently purchased are the ones being sold first and these costs are continually falling increasing net income. Using FIFO during periods of falling prices would cause net income to be lower than LIFO or average cost methods because the first inventory purchased is the first sold but during periods of falling prices this is the most expensive inventory causing net income to be lower.