答案和详解如下： 6.A switch from first in first out (FIFO) to last in first out (LIFO): A) results in a more meaningful inventory valuation during periods of rising prices. B) will result in higher taxes and smaller cash flows. C) results in a lower current ratio during periods of rising prices. D) removes the opportunity to affect net income by varying purchasing policy. The correct answer was C) During periods of rising prices if the inventory method is switched from FIFO to LIFO the current ratio will decrease because with LIFO the less expensive inventory is left over because the more expensive latest purchased inventory is shipped out first. With FIFO during rising prices the later purchased more expensive inventory would be left because the less expensive inventory which was purchased first would be shipped out first. The current ratio is (Current Assets)/(Current Liabilities) with inventory being part of CA. If we switched to LIFO, which leaves the less expensive purchases in inventory, CA will decrease and hence CA/CL will also decrease. Net income (NI) is affected because switching from FIFO to LIFO during periods of changing prices will change cost of goods sold (COGS) thus affecting NI. During periods of rising prices a change from FIFO to LIFO will increase COGS and thus lower NI resulting in lower taxes and higher cash flows.
7.Which of the following statements about inventory is most accurate? A) Generally accepted accounting principles (GAAP) requires the use of higher of cost or market value for inventory. B) In periods of rising prices, when converting the income statement from last in first out (LIFO) to first in first out (FIFO), net income will rise if there is no LIFO liquidation during the period. C) LIFO will provide the most useful estimate of inventory value and FIFO will provide the most useful estimate of the cost of goods sold. D) First in first out (FIFO) accounting, in times of falling prices, will tend to overstate reported profit margins. The correct answer was B) During periods of rising prices if the inventory method is switched from LIFO to FIFO net income will rise if there wasn't a LIFO liquidation because using FIFO the first purchased lower cost inventory is sold first and shows up as COGS on the income statement. This lower cost increases net income during periods of rising prices. Using LIFO during periods of rising prices the more expensive inventory (last inventory purchased) is sold first and shows up as a higher COGS on the income statement. The higher COGS lowers net income if LIFO is used during periods of rising prices versus FIFO. FIFO will provide the most useful estimate of inventory value (current costs are reported in inventory) and LIFO will provide the most useful estimate of the cost of goods sold (current costs are reported here instead).
8.Wallace Lumber uses LIFO and had the following note in its last financial statement: "Wallace Lumber showed a LIFO reserve of $90,000 in 2003 and $86,000 in 2004." Wallace's marginal tax rate is 31 percent. If Wallace's year-end LIFO inventory balance was $400,000, their inventory based on FIFO would be: A) $486,000. B) $490,000. C) $310,000. D) $314,000. The correct answer was A) INVF = INVL + LIFO reserve =$400,000 + $86,000 = $486,000
9.If Wallace's LIFO COGS were $70,000, their FIFO COGS would be: A) $74,000. B) $64,000. C) $66,000. D) $70,000. The correct answer was A) COGSF = COGSL - (LIFO reserveE - LIFO reserveB) = $70,000 - ($86,000 - $90,000) = $74,000
10.The Orchard Supply Company uses LIFO inventory valuation. Orchard Supply had a cost of goods sold of $1 million for the period. The inventory at the beginning of the period was $0.5 million, and the inventory at the end of the period was $0.6 million. Orchard Supply's LIFO reserve was $0.1 million for the previous year and $0.2 million for the current year. What is Orchard Supply's ending inventory according to FIFO inventory valuation? A) $0.8 million. B) $0.5 million. C) $0.6 million. D) $0.7 million. The correct answer was A) FIFO Inventory = $0.6 + 0.2 = $0.8 million.
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发表于 2008-4-14 10:52
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