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39. A firm uses the FIFO cost flow assumption. Compared to gross profit with a periodic inventory system, the firm’s gross profit with a perpetual inventory system would be:

A. lower.

B. higher.

C. the same.

  
  Ans: C.

For a firm using FIFO, gross profit is the same whether the firm uses a periodic or perpetual inventory system. For a firm using LIFO or average cost, gross profit can be different depending on the choice of inventory system.

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40. Bao Inc. currently uses the FIFO method to account for inventory. Due to significant tax-loss carryforwards, the company has an effective tax rate of zero. Prices are rising and inventory quantities are stable. If the company were to use LIFO instead of FIFO:

A. net income would be lower, and cash flows would be higher.

B. cash flow would remain the same, and working capital would decrease.

C. gross margin would increase, and average stockholder’s equity would decrease.

  
  Ans: B.

In the absence of taxes, there is no difference in cash flow between LIFO and FIFO. In addition, using LIFO would result in lower working capital (inventory is lower). Using LIFO would result in lower net income because of a lower gross margin (COGS is higher).

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41. From the point of view of a financial analyst, when evaluating companies that use different inventory cost assumptions, in a period of:

A. stable prices, LIFO inventory is preferred to FIFO inventory.

B. decreasing prices, FIFO inventory is preferred to LIFO inventory.

C. increasing prices, FIFO cost of sales is preferred to LIFO cost of sales.

  
  Ans: B.

The most useful estimates of inventory and cost of sales are those that best approximate current cost. Whether prices are increasing or decreasing, FIFO provides a better estimate of inventory values, and LIFO produces a better estimate of cost of sales. If prices are table, there is no difference between LIFO and FIFO estimates of inventory or cost of sales.

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42. During an accounting period, a company has the following sequence of transactions with a beginning inventory of zero:

Purchases

Sales

100 units at $210

80 units at $240

90 units at $225

90 units at $250

The company’s COGS using FIFO for inventory accounting, and its ending inventory using LIFO, are closest to:



FIFO COGS

LIFO ending inventory

A.

$36,750

$4,200

B.

$37,050

$4,200

C.

$37,050

$4,500





Ans: A.
FIFO COGS:

100@$210

=$21,000


70@$225

=$15,750



$36,750


LIFO ending inventory:

Purchases

190

Sales

170

balance

  20@$210=$4,200

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43. A company that reports under U.S.GAAP and changes its inventory cost assumption from weighted average cost to LIFO is required to apply this change in accounting principle:
A. retrospectively, and disclose the new cost flow method being used.
B. prospectively, and explain the reasons for the change in the financial statement disclosures.
C. retrospectively, and explain the reasons for the change in the financial statement disclosures.


Ans: B.
Under U.S.GAAP, a change to LIFO from another inventory cost method is an exception to the requirement of retrospective application of changes in an accounting principle. Instead of restating prior years’ data, the firm uses the carrying value of inventory at the time of the change as the firm LIFO layer. U.S.GAAP requires a company that is changing its inventory cost assumption to explain, in its financial statement disclosures, why the new method is preferable to the old method.

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44. During a period of falling costs of manufacturing, which of the following inventory cost formulas would result in the greatest reported net income?
A. LIFO.
B. FIFO.
C. Average cost.


Ans: A.
With LIFO, more recent, lower costs would be used for COGS. A reduction is COGS will increase gross profit and net income, other things equal.

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本帖最后由 cityboy 于 2013-9-23 10:57 编辑


45. A company began the most recent reporting period with 145,670 units in inventory, which were acquired at a cost of $7.5- per unit. During the year, a total of 1,550,000 units were sold. Inventory purchases by quarter were:

Purchases

Units

Unit cost

Q1

534,520

$7.95

Q2

341,233

$8.60

Q3

498,664

$9.45

Q4

297,808

$9.70

Ending inventory value using the average cost method is closest to:
A. $2,064,200.
B. $2,338,700.
C. $2,598,600.


Ans: B.
The ending inventory of 267,895 units has an average cost value of $2,338,723, determined as follows:

Beginning inventory

1,092,525 (145,670 x $7.50)

Q1 purchases

4,249,434 (534,520 x $7.95)

Q2 purchases

2,934,604 (341,233 x $8.60)

Q3 purchases

4.712,375 (498,664 x $9.45)

Q4 purchases

2,888,738 (297,808 x $9.70)

Total value $15,877,676 (1,817,895 units) = $8.73 average cost
Ending inventory = 1,817,895 – 1,550,000 units sold = 267,895 units x $8.73 = $2,338,723

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