标题: Financial Reporting and Analysis【Reading 20】Sample [打印本页]
作者: bigredhockey55 时间: 2012-3-28 14:41 标题: [2012 L2] Financial Reporting and Analysis【Session 5 - Reading 20】Sample
A firm’s financial statements reflect the following information:
Beginning inventory |
$3,200,000 |
Purchase during the year |
$1,700,000 |
Ending inventory |
$2,100,000 |
Sales |
$4,800,000 |
Gross profit margin | ???? |
What was the firm’s gross profit margin?
First we can determine the COGS by: COGS = beginning inventory + purchases – ending inventory = $2,800,000.
Then, gross profit margin = (sales – COGS) / sales = 0.42.
作者: bigredhockey55 时间: 2012-3-28 14:51
An analyst notes the following about a company:- Beginning inventory was reported as $5,000.
- Costs of goods sold were reported as $8,000.
- Ending inventory is $7,000 (the analyst has physically verified this amount).
Which of the following statements is most accurate?A)
| If the analyst discovered that beginning inventory was overstated by $1,000, then cost of goods sold must have been understated by $1,000. |
|
B)
| Purchases must have been $6,000. |
|
C)
| If the analyst discovered that beginning inventory was understated by $2,000, then earnings before taxes must have been overstated by $2,000. |
|
If inventory is overstated then COGS must also be overstated or purchases were understated, since you are told that ending inventory is ok.
作者: bigredhockey55 时间: 2012-3-28 14:52
While attending a local university, CFA candidate Anjolie Webster accepts a temporary position with a small manufacturing firm. Currently, the firm uses LIFO to account for inventory, but the owner is “just curious” about how the financial results would look if the company used FIFO. The owner hands Webster a photocopy of the inventory data for the current period (summarized below).- Beginning inventory of 1,000 units at $30 cost.
- Ending inventory of 800 units.
- Sales of 1,100 units.
- Three inventory purchases (listed from earliest purchase to latest purchase): 400 units at $27 each, 300 units at $25 each, and an unreadable number of units at $22 each. (Unfortunately, when the owner copied the original document, he left a yellow sticky note covering some of the inventory information.)
- Current assets (less inventory) of $75,000.
- Current liabilities of $65,000.
Using the information provided, determine which of the following statements is least accurate? All else equal, compared to LIFO, using FIFO would result in:A)
| a lower ending inventory balance. |
|
B)
| a current ratio of approximately 1.60. |
|
|
To calculate the current ratio (which includes the ending inventory balance) using FIFO, we first need to determine how many units were purchased in the third illegible purchase order.
Ending inventory = beginning inventory + units purchased – units sold, so
units purchased = units sold + ending inventory – beginning inventory
= 1,100 + 800 – 1,000 = 900
Third purchase units = 900 – 400 – 300 = 200
FIFO ending inventory = [(300 × 27) + (300 × 25) + (200 × 22)] = $20,000 - FIFO current ratio (all else equal) = (75,000 + 20,000) / 65,000 = approximately 1.46
The other choices are correct. Since prices are decreasing, FIFO cost of goods sold is higher (and gross margin is lower) than LIFO. And, FIFO ending inventory is lower than LIFO ending inventory. No LIFO calculations are necessary.
作者: bigredhockey55 时间: 2012-3-28 14:52
A firm’s financial statements reflect the following information:
Beginning inventory | $2,900,000 |
Purchase during the year | $1,600,000 |
Ending inventory | ???? |
Sales | $3,900,000 |
Gross Margin | 0.41 |
What was the firm’s ending inventory for this period?
First we can determine the cost of goods sold (COGS) by: COGS = sales (1 − gross margin) = $2,301,000.
Then, the ending inventory = beginning inventory + purchases − COGS = $2,199,000.
作者: bigredhockey55 时间: 2012-3-28 14:53
A firm uses the last in, first out (LIFO) accounting method and posts $100,000 as ending inventory. Last year's financial statements show inventory at $110,000. This period's income statement shows costs of goods sold at $90,000 with a LIFO reserve of $30,000. How much inventory was purchased this period, and what would the ending inventory balance be under first in, first out (FIFO)?
| Inventory purchases | Ending inventory (FIFO) |
EI = BI + P - COGS
100 = 110 + P - 90
P = $80,000
In order to convert ending inventory under FIFO to LIFO you have to add the LIFO reserve to the ending inventory under LIFO.
EIFIFO = $100,000 + $30,000 = $130,000
作者: bigredhockey55 时间: 2012-3-28 14:53
A company's beginning inventory was overstated by $3,000, now ending inventory is understated by $2,000. If purchases were properly reported, then earnings before taxes will be: |
|
C)
| understated by $5,000. |
|
The key relationship being tested is beginning inventory + purchases – COGS = ending inventory. So, beginning inventory + purchases – ending inventory = COGS. You could solve the equation as +3000 +0 - -2000 = +5000. However, it is probably easier to conceptualize by making up numbers that meet the requirements.
Actual (I made these numbers up):
20,000 + 5,000 – 15,000 = 10,000
Reported:
(20,000 + 3,000) + 5,000 – (15,000-2,000) = 15,000
COGS will be overstated by 5,000 so earnings before taxes (EBT) will be understated by 5,000.
作者: bigredhockey55 时间: 2012-3-28 15:05
Sweet Milk Inc uses the last in, first out (LIFO) inventory method and had 5,000 units of beginning inventory on January 1, 2002, that was valued at $10.00 a unit. The company purchased 50,000 units at $12 a unit and sold 52,000 units at $15 a unit. Sweet Milk is considering an additional purchase of 10,000 units at $13 a unit. The company will make the purchase at the end of December or in the early part of year 2003. Which statement about the effect of the purchase decision on net income is most accurate? A)
| Making the purchase in December will increase income by $16,000 in year 2002. |
|
B)
| Income for year 2002 will not be affected no matter when the inventory is purchased. |
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C)
| Postponing the purchase until January will increase income for 2002 by $14,000. |
|
By postponing the purchase until January, cost of goods sold (COGS) would be $620,000. A purchase in December would increase COGS to $634,000.
COGS for January purchase = (50,000 × 12) + (2,000 × 10) = 620,000
COGS for December purchase = (10,000 × 13) + (42,000 × 12) = 634,000
作者: bigredhockey55 时间: 2012-3-28 15:06
Given the following inventory data about a firm:- Beginning inventory 20 units at $50/unit
- Purchased 10 units at $45/unit
- Purchased 35 units at $55/unit
- Purchased 20 units at $65/unit
- Sold 60 units at $80/unit
What is the inventory value at the end of the period using first in, first out (FIFO)?
Ending inventory equals 20 + 10 + 35 + 20 − 60 = 25 of last units purchased in inventory.
(20 units)($65/unit) + (5 units)($55/unit) = $1,300 + $275 = $1,575
作者: bigredhockey55 时间: 2012-3-28 15:07
| Units | Unit Price |
| Beginning Inventory | 559 | $1.00 |
| Purchases | 785 | $5.00 |
| Sales | 848 | $15.00 |
| SGA Expenses | $3,191 per annum | |
What is the cost of goods sold using the weighted average cost method?
Average cost = cost of goods available / total units available. COGS = Units sold × wt. ave = 848 × 3.33631 = $2,829.19.
What is the cost of goods sold using the first in, first out (FIFO) method?
COGS = (559 × 1) + (289 × 5) = $2,004.00.
What is the ending inventory level in dollars using the FIFO method?
Ending inventory = 496 × 5 = $2,480.00.
作者: bigredhockey55 时间: 2012-3-28 15:08
Which of the following statements about inventory accounting is least accurate?A)
| If a U.S. firm uses last in, first out (LIFO) for tax reporting it must use LIFO for financial reporting. |
|
B)
| During periods of rising prices, last in, first out (LIFO) income will be lower than under first in, first out (FIFO) but cash flows will be higher. |
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C)
| During periods of rising prices, first in, first out (FIFO) based current ratios will be smaller than last in, first out (LIFO) based current ratios. |
|
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.
作者: bigredhockey55 时间: 2012-3-28 15:09
Which accounting methods are preferable for income statements and balance sheets?A)
| Last in, first out (LIFO) for income statements and first in, first out (FIFO) for the balance sheet. |
|
B)
| Last in, first out (LIFO) for the balance sheet and first in, first out (FIFO) for the income statement. |
|
C)
| First in, first out (FIFO) for both income statements and balance sheets. |
|
LIFO allocates the most recent prices to the cost of goods sold and provides a better measure of current income. For balance sheet purposes, inventories based on FIFO are preferable since these values most closely resemble current cost and economic value.
作者: bigredhockey55 时间: 2012-3-28 15:09
Jefferson Corp. decided to change its inventory valuation method from first in, first out (FIFO) to last in, first out (LIFO) in a period of rising prices. What was the result of the change for the ending inventory and net income? | Ending Inventory | Net Income |
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 cost of goods sold (COGS) which lowers net income.
作者: bigredhockey55 时间: 2012-3-28 15:10
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)?
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.
作者: bigredhockey55 时间: 2012-3-28 15:11
Which inventory method will provide the largest net income during periods of falling prices? |
B)
| Weighted average cost. |
|
|
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.
作者: bigredhockey55 时间: 2012-3-28 15:11
Given the following data what is the ending inventory value using the LIFO method, assuming a periodic inventory system?| Purchases | Sales |
| 50 units at $50/unit | 25 units at $55/unit |
| 60 units at $45/unit | 30 units at $50/unit |
| 70 units at $40/unit | 45 units at $45/unit |
Purchased 50 + 60 + 70 = 180 units. Sold 25 + 30 + 45 = 100.
Ending inventory = 180 – 100 = 80 of the first units purchased.
(50 units)($50/unit) + (30 units)($45/unit) = $2,500 + $1,350 = $3,850.
作者: bigredhockey55 时间: 2012-3-28 15:12
JME had beginning inventory of $200 and ending inventory of $300. JME had COGS of $800. JME must have purchased inventory amounting to:
beginning inv. + purchases - COGS = ending inv.200 + purchases – 300 = 800
purchases = 900
作者: RobertA 时间: 2012-3-28 15:14
JME purchased 400 units of inventory that cost $4.00 each. Later the firm purchased an additional 500 units that cost $5.00 each. JME sold 700 units of inventory for $7.00 each. If JME uses a first in, first out (FIFO) cost flow method, the amount of gross profit appearing on the income statement is:
(units sold × sales price) – [(inventory cost × unit cost) + (inventory cost × unit cost)] = sales – COGS = gross profit
(700 × 7.00) – [(400 × 4.00) + (300 × 5.00)] = 1,800
作者: RobertA 时间: 2012-3-28 15:15
Which of the following inventory accounting methods must be used for financial reporting purposes if a U.S. firm uses last in, first out (LIFO) for tax purposes? A)
| The firm may use any of the above methods. |
|
|
|
If a U.S. firm uses LIFO for tax purposes, it must also use LIFO for financial reporting purposes, according to U.S. tax law.
作者: RobertA 时间: 2012-3-28 15:17
Given the following data and assuming a periodic inventory system, what is the ending inventory using the average cost method?| Purchases | Sales |
| 40 units at $60/unit | 25 units at $65/unit |
| 50 units at $55/unit | 30 units at $60/unit |
| 60 units at $45/unit | 40 units at $50/unit |
Average cost per unit purchased:40 units at $60/per unit = $2,400
50 units at $55/per unit = $2,750
60 units at $45/per unit = $2,700
Total = 150 units = $7,850
Average cost per unit = $7,850 /150 units = $52.33/unit
Purchased 40 + 50 + 60 = 150 units. Sold 25 + 30 + 40 = 95
Ending inventory = 150 − 95 = 55 units × $52.33/unit = $2,878
作者: RobertA 时间: 2012-3-28 15:18
| Purchases | Sales |
| 20 units at $50 | 15 units at $60 |
| 35 units at $40 | 35 units at $45 |
| 85 units at $30 | 85 units at $35 |
Assume beginning inventory was zero.
Inventory value at the end of the period using the average cost method is:
Average Cost = Cost of Goods Available / Total Units Available
Average Cost = $4,950 / 140 = $35.36
EOP Inventory Value = $35.36 × 5 = $176.79
Inventory value at the end of the period using FIFO is:
(Units purchased minus units sold) times cost = EOP value
(140 – 135) × $30 = $150
Inventory value at the end of the period using LIFO is:
5 × $50 = $250
作者: RobertA 时间: 2012-3-28 15:19
The Mountain Bike Supply Company had 500 units in its beginning inventory. Each of these units cost $5. During the period, Mountain Bike Supply first purchased 400 units at $6 each and then 200 units at $7 each. At the end of the period, Mountain Bike Supply had 600 units. What is the cost of goods sold and inventory for Mountain Bike Supply if it uses FIFO inventory valuation?
Under FIFO: | COGS | = 500 @ $5 = $2,500 |
| Inventory | = 200 @ $7 + 400 @ $6 = $3,800 |
作者: RobertA 时间: 2012-3-28 15:19
Given the following inventory data about a firm: - Beginning inventory 20 units at $50/unit
- Purchased 10 units at $45/unit
- Purchased 35 units at $55/unit
- Purchased 20 units at $65/unit
- Sold 60 units at $80/unit
What is the inventory value at the end of the period using LIFO?
Ending inventory equals 20 + 10 + 35 + 20 − 60 = 25 of the first units purchased equals:
(20 units)($50/unit) + (5 units)($45/unit) =
$1,000 + $225 = $1,225
作者: RobertA 时间: 2012-3-28 15:20
| Units | Unit Price |
| Beginning Inventory | 709 | $2.00 |
| Purchases | 556 | $6.00 |
| Sales | 959 | $13.00 |
| SGA Expenses | $2,649 per annum | |
What is the cost of goods sold using the average cost method and using the first in first out (FIFO) method?
Average cost = cost of goods available/total units available. COGS = Units sold × avg. cost = 959 × 3.7581 = $3,604.02.
FIFO COGS = (709 × 2) + (250 × 6) = $2,918.00
What is the ending inventory level in dollars using the FIFO Method?
Ending Inventory = 306 × 6 = $1,836.00.
作者: RobertA 时间: 2012-3-28 15:21
An analyst provided the following information about a company:
The beginning inventory was:
COGS of $60,000 + ending inventory of $35,000, less purchases of $55,000.
作者: RobertA 时间: 2012-3-28 15:22
Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows:
| Units | Unit Cost | Total Cost |
Beginning Inventory | 20 | $10,000 | $200,000 |
Purchases, April | 10 | 12,000 | 120,000 |
Purchases, July | 10 | 12,500 | 125,000 |
Purchases, October | 20 | 15,000 | 300,000 |
In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers?
Under FIFO, cost of goods sold is the value of the first units purchased. The 35 units sold consist of the 20 units in beginning inventory, the 10 units purchased in April, and 5 of the units purchased in July. COGS = $200,000 + $120,000 + (5 × $12,500) = $382,500.
作者: RobertA 时间: 2012-3-28 15:22
For balance sheet purposes, inventories based on:A)
| FIFO are preferable to those based on LIFO, as they more closely reflect current costs. |
|
B)
| LIFO are preferable to those based on FIFO, as they more closely reflect the current costs. |
|
C)
| LIFO are preferable to those based on average cost, as they more closely reflect the current costs. |
|
The inventories based on FIFO are preferable to those presented under LIFO or average cost for balance sheet purposes. Under FIFO, the older inventories are taken out first, and the ending inventory balance consists of the recent purchases and thus most closely reflect the current (economic) value.
作者: RobertA 时间: 2012-3-28 15:23
During periods of rising prices and stable or growing inventories, the most informative inventory accounting method for income statement purposes is: A)
| weighted average because it allocates average prices to cost of good sold (COGS) and provides a better measure of current income. |
|
B)
| FIFO because it allocates historical prices to cost of good sold (COGS) and provides a better measure of current income. |
|
C)
| LIFO because it allocates current prices to cost of good sold (COGS) and provides a better measure of current income. |
|
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.
作者: RobertA 时间: 2012-3-28 15:24
Which is the preferred inventory method for purposes of analysis and which is the preferred method for reporting cost of goods sold?
FIFO is the preferred inventory method for purposes of analysis and LIFO is the preferred method for reporting cost of goods sold.
作者: RobertA 时间: 2012-3-28 15:26
During inflationary periods, which of the following statements is CORRECT? A)
| LIFO will generate higher earnings, but lower after tax cash flows. |
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B)
| LIFO will generate lower earnings, but lower after tax cash flows. |
|
C)
| FIFO will generate higher earnings, but lower after tax cash flows. |
|
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.
作者: RobertA 时间: 2012-3-28 15:27
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 LIFO than FIFO or average cost. |
|
C)
| higher under the average cost than LIFO or FIFO. |
|
During stable prices inventory levels are the same for both LIFO and FIFO.
作者: RobertA 时间: 2012-3-28 15:29
Which of the following statements is least accurate? A)
| In a period of rising prices, LIFO gives the best COGS, whereas FIFO gives the best inventory balance on the balance sheet. |
|
B)
| LIFO produces a tax benefit in a period of rising prices, therefore results in higher cash flows than FIFO. |
|
C)
| In a period of rising prices, FIFO gives the best COGS, whereas LIFO gives the best inventory balance on the balance sheet. |
|
If prices are rising steadily, FIFO inventory is valued at the more recent purchase prices which are higher and provide a better estimate of the replacement value of the inventory. LIFO costing will produce a cost of goods sold much closer to replacement cost which provides a better estimate than using FIFO.
作者: RobertA 时间: 2012-3-28 15:30
In a period of rising prices and stable or increasing inventory quantities, use of the first in, first out (FIFO) inventory cost flow assumption results in all of the following EXCEPT: A)
| higher earnings after taxes than under last in, first out (LIFO). |
|
B)
| lower inventory balances than under last in, first out (LIFO). |
|
C)
| higher earnings before taxes than under last in, first out (LIFO). |
|
Ending Inventory under FIFO includes more recently purchased higher cost goods than under LIFO. The LIFO inventory consists of older, cheaper goods. Both before and after tax earnings under FIFO will be higher because less expensive goods are used for the cost of goods sold (COGS). Working capital, which is equal to current assets – current liabilities will also be higher under FIFO due the higher inventory balance causing a higher level of current assets.
作者: RobertA 时间: 2012-3-28 15:30
In an inflationary environment, a company’s: A)
| assets will be lower if it uses last in, first out (LIFO) as opposed to FIFO. |
|
B)
| net income will be larger if it uses LIFO than if it uses FIFO. |
|
C)
| COGS sold will be lower if it uses LIFO as opposed to FIFO. |
|
In an inflationary period, assets will be lower under LIFO since the last, higher priced items are charged to the income statement
作者: RobertA 时间: 2012-3-28 15:31
Which of the following statements regarding inventory methods used during periods of rising prices is least accurate? A)
| FIFO results in higher inventory balances than LIFO. |
|
B)
| FIFO results in higher taxes than LIFO. |
|
C)
| LIFO results in lower cost of goods sold than FIFO. |
|
LIFO results in higher cost of goods sold during periods of rising prices because the last items bought, which are the most expensive, are the first items sold resulting in a higher cost of goods sold.
作者: RobertA 时间: 2012-3-28 15:32
An analyst acquires the following information regarding a company: | Units | Unit Price |
| Beginning Inventory | 559 | $1.00 |
| Purchases | 785 | $5.00 |
| Sales | 848 | $15.00 |
| SGA Expenses | $3,191 per annum | |
What are the Earnings Before taxes using the Weighted Average Method?
EBT = Sales − (COGS + SGA)COGS = Beginning inventory + Purchases − Ending inventory Ending inventory in units = 559 + 785 − 848 = 496 units
Average cost = (559 × $1 + $785 × $5) / (559 + 785)
= ($559 + $3,925) / 1,344 = $3.3363
Ending inventory = 496 × $3.3363 = $1,654.81 COGS = $559 + $3,925 − $1,654.81 = $2,829.19
EBT = 12,720 − (2,829.19 + 3,191) = $6,699.81.
作者: RobertA 时间: 2012-3-28 15:32
Given the following information and assuming beginning inventory was zero and a periodic inventory system was used, what is the gross profit at the end of the period using the FIFO, LIFO, and average cost methods?Purchases | Sales |
| 20 units at $50 | 15 units at $60 |
| 35 units at $40 | 35 units at $45 |
| 85 units at $30 | 85 units at $35 |
Sales = (15 * 60) + (35 * 45) + (85 * 35) = 5,450
COGSFIFO = (20 * 50) + (35 * 40) + (80 * 30) = 4,800
GMFIFO: $5,450 − 4,800 = $650
COGSLIFO = (15 * 50) + (35 * 40) + (85 * 30) = 4,700
GMLIFO: $5,450 − $4,700 = $750
COGSAverage = (20 * 50) + (35 * 40) + (85 * 30) = 4,950
4,950*135 / 140 = 4,773.21
GMCost Average: $5,450 − $4,773.21 = $676.79
作者: RobertA 时间: 2012-3-28 15:33
In periods of falling prices, which of the following statements is CORRECT? Compared to FIFO, LIFO results in:A)
| lower COGS, lower taxes and higher net income. |
|
B)
| higher inventory balances and higher working capital. |
|
C)
| higher inventory balances and lower 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.
作者: RobertA 时间: 2012-3-28 15:37
| Units | Unit Price |
| Beginning Inventory | 709 | $2.00 |
| Purchases | 556 | $6.00 |
| Sales | 959 | $13.00 |
| SGA Expenses | $2,649 per annum | |
What is the cost of goods sold using the weighted average method?
Weighted average = cost of goods available / total units available. COGS = Units sold × weighted average = 959 × 3.7581 = $3,604.02.
What is the cost of goods sold using the first in, first out (FIFO) method?
COGS = (709 × 2) + (250 × 6) = $2,918.00.
What is the ending inventory level in dollars using the FIFO method?
Ending Inventory = 306 × 6 = $1,836.00.
作者: RobertA 时间: 2012-3-28 15:39
Which of the following is least likely part of the basic inventory equation?A)
| Beginning inventory + purchases = ending inventory + cost of goods sold. |
|
B)
| Beginning inventory − ending inventory − cost of goods sold = purchases. |
|
C)
| Purchases − ending inventory + beginning inventory = cost of goods sold. |
|
To solve for purchases the basic inventory equation would then be: ending inventory + COGS − beginning inventory = purchases.
作者: RobertA 时间: 2012-3-28 15:40
| Units | Unit Price |
| Beginning Inventory | 699 | $5.00 |
| Purchases | 710 | $8.00 |
| Sales | 806 | $15.00 |
| SGA Expenses | $3,141 per annum | |
Determine the cost of goods sold using the weighted average method and also using the first in, first out (FIFO) method.
Weighted average = cost of goods available / total units available.
[(699 x 5) + (710 x 8)] / (699 + 710) = 6.51171
COGS = Units sold × Weighted average = 806 × 6.51171 = $5,248.44.
FIFO COGS = (699 × 5) + (107 × 8) = $4,351.00
What is the ending inventory level in dollars using the FIFO method?
There are (699 + 710 – 806) = 603 items left in inventory. Ending Inventory = 603 × 8 = $4,824.00.
作者: RobertA 时间: 2012-3-28 15:40
Given the following data and assuming a periodic inventory system, what is the ending inventory value using the FIFO method?| Purchases | Sales |
| 50 units at $50/unit | 25 units at $55/unit |
| 60 units at $45/unit | 30 units at $50/unit |
| 70 units at $40/unit | 45 units at $45/unit |
Purchased 50 + 60 + 70 = 180 units. Sold 25 + 30 + 45 = 100.
Ending inventory = 180 – 100 = 80 of the last units purchased.
(70 units)($40/unit) + (10 units)($45/unit) = $2,800 + $450 = $3,250.
作者: RobertA 时间: 2012-3-28 15:41
| Units | Unit Price |
| Beginning Inventory | 709 | $2.00 |
| Purchases | 556 | $6.00 |
| Sales | 959 | $13.00 |
| Sales Expenses | $2,649 per annum | |
What is gross profit using the FIFO method and LIFO method?
FIFO COGS = (709 units)($2/unit) + (959 − 709)($6/unit) = $1,418 + $1,500 = $2,918
Sales = (959 units)($13/unit) = $12,467
Gross profit = Sales − COGS − Sales Expenses= 12,467 − 2,918 − 2,649 = $6,900
LIFO COGS = (556 units)($6/unit) + (959 − 556)($2/unit) = $3,336 + $806 = $4,142
Sales = (959 units)($13/unit) = $12,467
Gross profit = Sales − COGS − Sales Expenses = 12,467 − 4,142 − 2,649 = $5,676
作者: RobertA 时间: 2012-3-28 15:43
| Units | Unit Price |
| Beginning Inventory | 709 | $2.00 |
| Purchases | 556 | $6.00 |
| Sales | 959 | $13.00 |
| Sales Expenses | $2,649 per annum | |
Ignoring taxes, what is profit using the weighted average method?
weighted average cost per unit = (709 units)($2/unit) + (556 units)($6/unit) = $4,754 / 1,265units = $3.7581
weighted average COGS = ($3.7581)(959 units) = $3,604.02
Sales = (959 units)($13/unit) = $12,467
Profit = Sales − COGS − Sales Expenses = 12,467 − 3,604.02 − 2,649 = $6,213.98
作者: RobertA 时间: 2012-3-28 15:43
During periods of decreasing prices, a firm using a periodic inventory system will report higher gross profit if its inventory cost assumption is: A)
| FIFO because during periods of decreasing prices, COGS will be higher, resulting in a higher gross profit. |
|
B)
| LIFO because during periods of decreasing prices, COGS will be lower, resulting in a higher gross profit. |
|
C)
| FIFO because during periods of decreasing prices, COGS will be lower, resulting in a higher gross profit. |
|
In periods of falling prices, LIFO results in lower COGS, and therefore higher gross profit than FIFO, because LIFO assumes the most recently purchased (lower cost) goods are sold first.
作者: RobertA 时间: 2012-3-28 15:44
The cost flow assumption of LIFO vs. FIFO would have several implications while analyzing financial statements, especially when comparing companies using different methods.
Suppose we are comparing: Alpha (uses LIFO) and Beta (uses FIFO).In an inflationary scenario, with rising inventory levels, which company would most likely report COGS reflecting current prices?
The LIFO cost flow assumption transfers the most recent purchases to COGS and hence would reflect current prices. Alpha with the LIFO cost flow assumption would therefore report current prices in their COGS.
In a deflationary scenario, with rising inventory levels, which company would most likely report COGS reflecting current prices?
The LIFO cost flow assumption transfers the most recent purchases to COGS and hence would reflect current prices. This holds true whether prices are rising or falling. Alpha with the LIFO cost flow assumption would therefore report current prices in their COGS.
For this question only, suppose there is a third company Gamma. Like Alpha, Gamma also uses LIFO cost flow assumption. However, unlike Alpha, Gamma’s LIFO reserve has been decreasing over the years. In an inflationary scenario, which company would most likely report COGS reflecting current prices?
Both Alpha and Gamma would reflect more current prices in COGS as compared to Beta. However, since Gamma has a LIFO liquidation as compared to Alpha, Gamma’s COGS includes some older price inventory. Alpha’s inventory levels are increasing and therefore its COGS would be most current.
Suppose Beta was considering an inventory write-down. Which group of ratios would most likely look worse due to such a move? A)
| Profitability and Turnover. |
|
B)
| Turnover and Leverage. |
|
C)
| Profitability and Leverage. |
|
Inventory write-down would lower inventory values and the current period’s reported profits. Profitability ratios would suffer. The turnover ratio would be favorable due to lower asset (inventory) values. Leverage ratios would also suffer due to lower equity (via retained earnings).
作者: RobertA 时间: 2012-3-28 15:45
Brigham Corporation uses the last-in, first-out (LIFO) method of accounting for inventory. For the year 2005, the following is provided:- Cost of goods sold (COGS): $24,000
- Beginning inventory: $6,000
- Ending inventory: $7,500
- The notes accompanying the financial statements indicate that the LIFO reserve at the beginning of the year was $2,250 and at the end of the year was $6,000
If Brigham had used first-in, first-out (FIFO), the COGS for 2005 would be:
FIFO COGS = LIFO COGS − change in LIFO reserve. Therefore, $24,000 − ($6,000 − 2,250) = $20,250.
作者: AndyNZ 时间: 2012-3-28 15:53
GR Corporation uses the last-in, first out (LIFO) method of accounting for inventory and $70,000 is reported as cost of goods sold (COGS) on their income statement. However, if GR had used first-in, first-out (FIFO), the COGS would have been $60,000. If the ending LIFO reserve (LR) reported in the financial statements is $40,000, the beginning LIFO reserve is:
Beginning LR + ΔLR = Ending LR
ΔLR = COGS(LIFO) – COGS(FIFO) = $70,000 – 60,000 = $10,000
Beginning LR = $40,000 – 10,000 = $30,000
作者: AndyNZ 时间: 2012-3-28 15:54
An analyst gathers the following information about a firm:- Last in, first out (LIFO) inventory = $10,000
- Beginning LIFO reserve = $2,500
- Ending LIFO reserve = $4,000
- LIFO cost of goods sold = $15,000
- LIFO net income = $1,500
- Tax rate is 40%
To convert the financial statements to a FIFO basis, the amount the analyst should add to the stockholders' equity is closest to:
If the firm had used FIFO inventory cost, tax liability would be higher by (LIFO reserve × tax rate) and retained earnings would be higher by [LIFO reserve × (1 − tax rate)].
(LIFO reserve)(1 − t) = $4,000(1 − 0.4) = $2,400
作者: AndyNZ 时间: 2012-3-28 15:55
The Baker Company uses the last in, first out (LIFO) inventory valuation method and reported its inventory at $200,000 and its cost of goods sold (COGS) at $500,000. The company’s LIFO reserve increased from $5,000 to $30,000 during the year. What amounts would the company report for ending inventory and cost of goods sold if it were to use the first in, first out (FIFO) method?
Ending inventory under FIFO is equal to LIFO ending inventory + LIFO reserve
= 200,000 + 30,000 = 230,000
COGS under FIFO equals LIFO COGS − (ending LIFO reserve − beginning LIFO reserve)
= 500,000 − (30,000 − 5,000) = 475,000.
作者: AndyNZ 时间: 2012-3-28 15:55
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 cost of goods sold (COGS). |
|
B)
| Increase gross income. |
|
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.
作者: AndyNZ 时间: 2012-3-28 15:56
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. |
|
|
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.
作者: AndyNZ 时间: 2012-3-28 15:57
First in, first out (FIFO) inventory equals: A)
| LIFO cost of goods sold − changes in LIFO reserve. |
|
B)
| LIFO inventory + LIFO reserve. |
|
C)
| the change in LIFO reserve − LIFO ending reserve. |
|
To convert LIFO inventory balances to a FIFO basis, simply add the LIFO reserve to the LIFO inventory:
INVF = INVL + LIFO Reserve
作者: AndyNZ 时间: 2012-3-28 15:58
Given the following data:- Beginning LIFO Reserve $2,300
- Cost of Goods Sold (COGS) using LIFO $6,100
- COGS using FIFO of $4,300
What is the Ending LIFO reserve?
Ending LIFO Reserve = (LIFO COGS − FIFO COGS) + Beginning LIFO Reserve = (6,100 − 4,300) + 2,300 = $4,100.
作者: AndyNZ 时间: 2012-3-28 15:58
The following information has been gathered about a firm:- LIFO inventory = $10,000
- Beginning LIFO reserve = $2,500
- Ending LIFO reserve = $4,000
- LIFO cost of goods sold = $15,000
- LIFO net income = $1,500
- Tax rate is 40%
What is the FIFO COGS?
FIFO COGS = LIFO COGS – change in LIFO reserve
= $15,000 – (4,000 − 2,500) = $13,500
作者: AndyNZ 时间: 2012-3-28 15:59
The formula to convert an ending inventory value from the LIFO to the FIFO method is to: A)
| FIFO inventory = LIFO inventory + LIFO reserve. |
|
B)
| FIFO inventory = LIFO inventory − LIFO reserve. |
|
C)
| FIFO inventory = LIFO inventory × LIFO reserve. |
|
The formula to convert an ending inventory value from the LIFO to the FIFO method is to FIFO inventory = LIFO inventory + LIFO reserve.
作者: AndyNZ 时间: 2012-3-28 16:00
If a firm has a first in, first out (FIFO) inventory of 9,000 and a last in, first out (LIFO) inventory of 6,500, what is the value of the LIFO reserve assuming a 40% tax rate?
LIFO reserve = FIFO inventory − LIFO inventory = 9,000 − 6,500 = 2,500
作者: AndyNZ 时间: 2012-3-28 16:00
M J Inc reported COGS of $80,000 for the year under the LIFO inventory valuation method. M J had a beginning LIFO reserve of $8,000 and an ending LIFO reserve of $11,000. The COGS under the FIFO inventory valuation method is:
FIFO COGS is reduced when a LIFO reserve is increased. So, COGS = 80,000 − (11,000 − 8,000) = 77,000.
作者: AndyNZ 时间: 2012-3-28 16:01
In a period of rising prices, LIFO liquidation results in: A)
| increase in inventory. |
|
|
|
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.
作者: AndyNZ 时间: 2012-3-28 16:02
In case of a decline in LIFO reserve, to obtain a better analysis an analyst should: A)
| not make any adjustments. |
|
B)
| adjust the income statement, regardless of the reasons for the decline. |
|
C)
| adjust the income statement, only if such a decline is due to LIFO liquidation. |
|
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.
作者: AndyNZ 时间: 2012-3-28 16:02
LIFO liquidation may result when:A)
| purchases are less than goods sold. |
|
B)
| purchases are more than goods sold. |
|
C)
| cost of goods sold is less than the available inventory. |
|
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.
作者: AndyNZ 时间: 2012-3-28 16:04
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?
Ending LIFO reserve = (LIFO COGS − FIFO COGS) + Beginning LIFO reserve
= ($3,988 − $2,004) + $2,484
= $4,468
作者: AndyNZ 时间: 2012-3-28 16:05
Given the following inventory information about the Buckner Company: - Year-end last in, first out (LIFO) inventory of $6,500.
- Year-end LIFO reserve of $2,500.
- The current year's LIFO cost of goods sold (COGS) is $15,000.
- After tax income is $1,600.
- The previous year's LIFO reserve was $2,000.
How much higher would the firm's retained earnings be on a first in, first out (FIFO) basis if the firm's tax rate is 40%?
Adjustment to retained earnings = LIFO reserve (1 − t) = $2,500(1 − 0.4) = $1,500
作者: AndyNZ 时间: 2012-3-28 16:05
Granulated Corp. uses the last in, first out (LIFO) inventory cost flow assumption. Selected information from Granulated’s financial statements for the years ended December 31, 20X3 and 20X4 was as follows (in $):
| 20X3 | 20X4 |
Beginning Inventory | 4,375,000 | 5,525,000 |
Purchases | 10,200,000 | 11,300,000 |
Ending Inventory | 5,525,000 | 6,100,000 |
Beginning LIFO Reserve | 825,000 | 975,000 |
Ending LIFO Reserve | 975,000 | 1,125,000 |
If Granulated changed from LIFO to first in, first out (FIFO) for 20X4, Granulated’s cost of goods sold (COGS) in 20X4 under FIFO would be:
Granulated’s 20X4 LIFO cost of goods sold (beginning inventory plus purchases less ending inventory) was ($5,525,000 + $11,300,000 − $6,100,000 =) $10,725,000. To convert to FIFO the LIFO cost of goods sold would be reduced by the increase in the LIFO reserve during 20X4 ($1,125,000 − $975,000 =) $150,000. The FIFO COGS in 2001 was ($10,725,000 − $150,000 =) $10,575,000.
作者: AndyNZ 时间: 2012-3-28 16:09
A firm ended the last period with inventory of $4.0 million and a last in, first out (LIFO) reserve of $175,000. During the year, it made purchases of $2.0 million and reported sales of $5.5 million with a gross margin of 0.32. At the end of the year, it reported a LIFO reserve of $75,000. What is the value of the firm’s cost of goods sold (COGS) on a first in, first out (FIFO) basis?
With sales of $5.5 million and a gross margin of 0.32, the COGS (on a LIFO basis) is $3.74 million. In order to convert COGS to a FIFO basis, we need to subtract the change in LIFO reserve during the year: $3,740,000 − ($75,000 − $175,000) = $3,840,000.
作者: AndyNZ 时间: 2012-3-28 16:10
A firm ended the last period with inventory of $3.0 million and a last in, first out (LIFO) reserve of $40,000. During the year, it made purchases of $1 million and reported sales of $4 million with a gross margin of 0.58. At the end of the year, it reported a LIFO reserve of $75,000. What is the value of the firm’s ending inventory converted to a first in, first out (FIFO) basis?
With sales of $4 million and a gross margin of 0.58, the COGS (on a LIFO basis) is 1.68 million. This would leave an ending inventory of 3 million + 1 million − 1.68 million = $2.32 million on a LIFO basis. In order to adjust this to FIFO, we would add the ending LIFO reserve of $75,000 to arrive at $2.395 million.
作者: AndyNZ 时间: 2012-3-28 16:12
Selected information from Oldtown, Inc.’s financial statements for the year ended December 31, 2004 included the following (in $):
Cash | 1,320,000 | | Accounts Payable | 1,620,000 |
Accounts Receivable | 2,430,000 | | Deferred Tax Liability | 715,000 |
Inventory | 6,710,000 | | Long-term Debt | 15,230,000 |
Property, Plant & Equip. | 12,470,000 | | Common Stock | 1,000,000 |
Total Assets | 22,930,000 | | Retained Earnings | 4,365,000 |
| | | Total Liabilities & Equity | 22,930,000 |
Sales | 15,000,000 | | | |
Net Income | 3,000,000 | | | |
LIFO Reserve at Jan. 1 | 1,620,000 | | | |
LIFO Reserve at Dec. 31 | 1,620,000 | | | |
Oldtown uses the last in, first out (LIFO) inventory cost flow assumption. The tax rate was 40%. If Oldtown changed from LIFO to first in, first out (FIFO) for 2004, net profit margin would:A)
| decrease from 20.0 to 13.5%. |
|
B)
| remain unchanged at 20.0%. |
|
C)
| decrease from 20.0 to 16.8%. |
|
Net profit margin under LIFO (net income / net sales) was ($3,000,000 / $15,000,000 =) 20.0%. Under FIFO, net income does not change in 2004 because there was no change in the LIFO reserve balance, and no adjustment of net income is made.
作者: torontoanalyst 时间: 2012-3-28 16:33
Selected financial data from Krandall, Inc.’s balance sheet for the year ended December 31 was as follows (in $):
Cash | $1,100,000 |
Accounts Payable | $400,000 |
Accounts Receivable | 300,000 |
Deferred Tax Liability | 700,000 |
Inventory | 2,400,000 |
Long-term Debt | 8,200,000 |
Property, Plant & Eq. | 8,000,000 |
Common Stock | 1,000,000 |
Total Assets | 11,800,000 |
Retained Earnings | 1,500,000 |
LIFO Reserve at Jan. 1 | 600,000 |
Total Liabilities & Equity | 11,800,000 |
LIFO Reserve at Dec. 31 | 900,000 |
|
|
Krandall uses the last in, first out (LIFO) inventory cost flow assumption. The tax rate is 40%. If Krandall used first in, first out (FIFO) instead of LIFO and paid any additional tax due, its assets-to-equity ratio would be closest to:
With FIFO instead of LIFO:- Inventory would be higher by $900,000, the amount of the ending LIFO reserve.
- Cumulative pretax income would also be higher by $900,000, so taxes paid would be higher by 0.40($900,000) = $360,000. Therefore cash would be lower by $360,000.
- Cumulative retained earnings would be higher by (1 − 0.40)($900,000) = $540,000.
So assets under FIFO would be $11,800,000 + $900,000 - $360,000 = $12,340,000 and equity would be $1,000,000 + $1,500,000 + $540,000 = $3,040,000. The assets-to-equity ratio would be $12,340,000 / $3,040,000 = 4.06.
作者: torontoanalyst 时间: 2012-3-28 16:34
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?
FIFO Inventory = $0.6 + 0.2 = $0.8 million.
作者: torontoanalyst 时间: 2012-3-28 16:40
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%.If Wallace's year-end LIFO inventory balance was $400,000, their inventory based on FIFO would be:
INVF = INVL + LIFO reserve
=$400,000 + $86,000
= $486,000
If Wallace's LIFO COGS were $70,000, their FIFO COGS would be:
COGSF = COGSL - (LIFO reserveE - LIFO reserveB)
= $70,000 - ($86,000 - $90,000)
= $74,000
作者: torontoanalyst 时间: 2012-3-28 16:48
If a company using last in, first out (LIFO) reports an inventory balance of $22,000 and a LIFO reserve of $4,000 (assume a 40% effective tax rate), the estimated value for the inventory on a first in, first out (FIFO) basis would be:
FIFO INV = LIFO INV + LIFO Reserve
X = 22,000 + 4,000
X = 26,000
The effective tax rate is not used in this calculation.
作者: torontoanalyst 时间: 2012-3-28 16:48
The formula to convert cost of goods sold (COGS) from last in, first out (LIFO) to first in, first out (FIFO) is: A)
| COGS FIFO = COGS LIFO – change in the LIFO reserve. |
|
B)
| COGS FIFO = COGS LIFO + change in the LIFO reserve. |
|
C)
| COGS FIFO = COGS LIFO + beginning LIFO reserve. |
|
The formula for converting COGS from LIFO to FIFO is COGSF = COGSL − (LIFO reserveE − LIFO reserveB)
作者: torontoanalyst 时间: 2012-3-28 16:49
The year-end financial statements for a firm using last in first out (LIFO) acounting show an inventory level of $5,000, cost of goods sold (COGS) of $16,000, and inventory purchases of $14,500. If the LIFO reserve is $4,000 at year-end and was $1,500 at the beginning of the year, what would the COGS have been using FIFO accounting?
COGS from LIFO to FIFO:
COGSF = COGSL − change in LIFO reserve
= COGSL - (LIFO reserveE − LIFO reserveB)
= $16,000 − ($4,000 − $1,500)
= $16,000 − $2,500
= $13,500
作者: torontoanalyst 时间: 2012-3-28 16:49
The Orchard Supply Company uses last in, first out (LIFO) inventory valuation. Orchard Supply had a cost of goods sold (COGS) of $1 million for the period. The inventory at the beginning of the period was $500,000 and the inventory at the end of the period was $600,000. Orchard Supply's LIFO reserve was $100,000 at the end of the previous year and $200,000 at the end of the current year. What is Orchard Supply's COGS according to first in, first out (FIFO) inventory valuation?
FIFO COGS = LIFO COGS − change in LIFO reserve
FIFO COGS = $1 million − $100,000 = $900,000
作者: torontoanalyst 时间: 2012-3-28 16:50
A financial analyst could adjust the current ratio in which a company uses the LIFO inventory valuation method to the FIFO method by: A)
| deducting the LIFO reserve from the current asset. |
|
B)
| adding the LIFO reserve to the current assets. |
|
C)
| adding the LIFO reserve to the current liabilities. |
|
The LIFO reserve increases the inventory value under FIFO and inventory is included in the numerator in the current ratio.
作者: bapswarrior 时间: 2012-3-28 17:27
Costiuk Ltd. uses the LIFO inventory cost flow assumption. Its inventory balance is $400 at the end of 20X8 and was $350 at the end of 20X7. A footnote in its financial statements reads: “Inventories would have been $70 higher in 20X8 and $80 higher in 20X7 using the FIFO cost flow assumption.”
Which of the following amounts represents the inventory balance under FIFO at the end of 20X8?
The $70 and $80 amounts represent the LIFO reserves which are differences between LIFO inventory and its value under FIFO.
FIFO inventory (20X8) = LIFO inventory (20X8) + LIFO reserve (20X8)
$400 + $70 = $470
作者: bapswarrior 时间: 2012-3-28 17:27
Moore Ltd. uses the LIFO inventory cost flow assumption. Its cost of goods sold in 20X8 was $800. A footnote in its financial statements reads: “Using FIFO, inventories would have been $70 higher in 20X8 and $80 higher in 20X7.” Moore’s COGS if FIFO inventory costing were used in 20X8 is closest to:
The ending LIFO reserve is $70 and the beginning LIFO reserve is $80.
FIFO COGS = LIFO COGS − (ending LIFO reserve − beginning LIFO reserve)
$800 − ($70 − $80) = $810
作者: bapswarrior 时间: 2012-3-28 17:28
Due to declining prices, Steffen Inc. has a LIFO reserve of –$20. Its income tax rate is 35%. If an analyst is converting Steffen’s financial statements to a FIFO basis, which of the following adjustments is most likely required? A)
| Decrease liabilities by $7. |
|
B)
| Increase assets by $20. |
|
C)
| Increase shareholders’ equity by $13. |
|
Declining prices (negative LIFO reserve) would result in FIFO inventory being less than LIFO inventory based on the following equation:
FIFO inventory = LIFO inventory + LIFO reserve
The balance sheet adjustment would decrease assets (inventory) by the $20 LIFO reserve. In addition, the analyst would decrease liabilities by $7 ($20 LIFO reserve × 35% tax rate). To bring the accounting equation into balance, the analyst would decrease shareholders’ equity by $13 [$20 LIFO reserve × (1 − 35% tax rate)].
作者: bapswarrior 时间: 2012-3-28 17:28
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)
| the LIFO reserve was being amortized. |
|
B)
| a LIFO liquidation occurred. |
|
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.
作者: bapswarrior 时间: 2012-3-28 17:29
Barber Inc. sells DVD recorders. On October 14, it purchased a large number of recorders at a cost of $90 each. Due to an oversupply of recorders remaining in the marketplace due to lower than anticipated demand during the Christmas season, the selling price at December 31 is $80 and the replacement cost is $73. The normal profit margin is 5 percent of the selling price and the selling costs are $2 per recorder.
Under U.S. GAAP, what is the value of the recorders on December 31?
Under U.S. GAAP, market is equal to the replacement cost subject to replacement cost being within a specific range. The upper bound is net realizable value (NRV), which is equal to selling price ($80) less selling costs ($2) for an NRV of $78. The lower bound is NRV ($78) less normal profit (5% of selling price = $4) for a net amount of $74. Since replacement cost ($73) is less than NRV minus normal profit ($74), then market equals NRV minus normal profit ($74). As well, we have to use the lower of cost ($90) or market ($74) principle so the recorders should be recorded at the lower amount of $74.
作者: bapswarrior 时间: 2012-3-28 17:29
Using the lower of cost or market principle under U.S. GAAP, if the market value of inventory falls below its historical cost, the minimum value at which the inventory can be reported in the financial statements is the: |
B)
| market price minus selling costs minus normal profit margin. |
|
C)
| net realizable value minus selling costs. |
|
When inventory is written down to market, the replacement cost of the inventory is its market value, but the “market value” must fall between net realizable value (NRV) and NRV less normal profit margin. NRV is the market price of the inventory less selling costs. Therefore the minimum value is the market price minus selling costs minus normal profit margin.
作者: bapswarrior 时间: 2012-3-28 17:31
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. |
|
Under the assumptions of this question and using LIFO, the most expensive units go to COGS, resulting in lower net income.
作者: bapswarrior 时间: 2012-3-28 17:32
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 higher net income. |
|
B)
| higher total assets and higher net income. |
|
C)
| lower total assets and lower net income. |
|
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.
作者: bapswarrior 时间: 2012-3-28 17:32
When analyzing profitability ratios, which inventory accounting method is preferred? |
B)
| Last in, first out (LIFO). |
|
C)
| First in, first out (FIFO). |
|
Using LIFO cost of goods sold (COGS) gives a more accurate measure of future earnings because the LIFO COGS is more representative of the current cost of product sold as compared to using FIFO therefore net income will be more accurately represented
作者: bapswarrior 时间: 2012-3-28 17:33
The best way to compute an inventory turnover ratio is to use: A)
| last in, first out (LIFO) for cost of goods sold (COGS) and first in, first out (FIFO) for average inventory. |
|
B)
| last in, first out (LIFO) for both cost of goods sold (COGS) and average inventory. |
|
C)
| first in, first out (FIFO) for both cost of goods sold (COGS) and average inventory. |
|
Inventory turnover makes no sense at all for firms using LIFO due to the mismatching of costs (the numerator is current while the denominator is historical). FIFO based inventory is relatively unaffected by price changes and is a good approximation of actual turnover. In this way, current costs are matched in the numerator and denominator.
作者: bapswarrior 时间: 2012-3-28 17:33
Selected information from Mendota, Inc.’s financial statements for the year ended December 31 includes the following (in $):Sales | 7,000,000 |
Cost of Goods Sold | 5,000,000 |
LIFO Reserve on Jan. 1 | 600,000 |
LIFO Reserve on Dec. 31 | 850,000 |
Mendota uses the last in, first out (LIFO) inventory cost flow assumption. The tax rate is 40%. If Mendota changed from LIFO to first in, first out (FIFO), its gross profit margin would:
Gross profit margin under LIFO ((sales – cost of goods sold) / sales) is (($7,000,000 − $5,000,000) / $7,000,000) = 28.6%. Under FIFO, cost of goods sold is reduced by the increase in the LIFO reserve, and the resulting FIFO gross profit margin is (($7,000,000 – ($5,000,000 – ($850,000 - $600,000)) / $7,000,000) = 32.1%. Note that the tax rate only affects income totals after income tax expense is shown and does not affect the gross profit margin.
作者: bapswarrior 时间: 2012-3-28 17:35
Selected information from Newcomb, Inc.’s financial statements for the year ended December 31, 20X4 included the following (in $):
Cash | 70,000 |
|
Accounts Payable | 90,000 |
Accounts Receivable | 140,000 |
|
Deferred Tax Liability | 100,000 |
Inventory | 460,000 |
|
Long-term Debt | 520,000 |
Property, Plant & Equip. | 1,200,000 |
|
Common Stock | 600,000 |
Total Assets | 1,870,000 |
|
Retained Earnings | 360,000 |
|
|
|
Total Liabilities & Equity | 1,870,000 |
Earnings Before Interest and Taxes | 280,000 |
[td]
[td]
[/td] |
Interest Expense | 60,000 |
|
|
|
Income Tax Expense | 75,000 |
[td]
[td]
[/td] |
Net Income | 145,000 |
|
|
|
LIFO Reserve at Jan. 1 | 185,000 |
|
|
|
LIFO Reserve at Dec. 31 | 250,000 |
|
|
|
If Newcomb had used first in, first out (FIFO) for 20X4 and we assume that average total capital was $1,700,000 for both the LIFO and FIFO computations, the return on total capital would:A)
| decrease from 16.5 to 12.6%. |
|
B)
| increase from 16.5 to 20.3%. |
|
C)
| remain unchanged at 16.5%. |
|
The return on total capital under LIFO (EBIT / average total capital) was $280,000 / $1,700,000 = 16.5%. Under FIFO, EBIT is increased by the increase in the LIFO reserve during the year. FIFO return on total capital is ($280,000 + ($250,000 − $185,000)) / $1,700,000 = 20.3%.
作者: bapswarrior 时间: 2012-3-28 17:38
Selected information from Newcomb, Inc.’s financial statements for the year ended December 31, 20X4 included the following (in $):
Cash | 70,000 |
|
Accounts Payable | 90,000 |
Accounts Receivable | 140,000 |
|
Deferred Tax Liability | 100,000 |
Inventory | 460,000 |
|
Long-term Debt | 520,000 |
Property, Plant & Equip. | 1,200,000 |
|
Common Stock | 600,000 |
Total Assets | 1,870,000 |
|
Retained Earnings | 360,000 |
|
|
|
Total Liabilities & Equity | 1,870,000 |
Earnings Before Interest and Taxes | 280,000 |
[td]
[td]
[/td] |
Interest Expense | 60,000 |
|
|
|
Income Tax Expense | 75,000 |
[td]
[td]
[/td] |
Net Income | 145,000 |
|
|
|
LIFO Reserve at Jan. 1 | 185,000 |
|
|
|
LIFO Reserve at Dec. 31 | 250,000 |
|
|
|
If Newcomb had used first in, first out (FIFO) for 20X4 and we assume that average total capital was $1,700,000 for both the LIFO and FIFO computations, the return on total capital would:A)
| decrease from 16.5 to 12.6%. |
|
B)
| increase from 16.5 to 20.3%. |
|
C)
| remain unchanged at 16.5%. |
|
The return on total capital under LIFO (EBIT / average total capital) was $280,000 / $1,700,000 = 16.5%. Under FIFO, EBIT is increased by the increase in the LIFO reserve during the year. FIFO return on total capital is ($280,000 + ($250,000 − $185,000)) / $1,700,000 = 20.3%.
作者: bapswarrior 时间: 2012-3-28 17:40
If all else holds constant in periods of rising prices and inventory levels: A)
| FIFO firms have higher debt to equity ratios than LIFO firms do. |
|
B)
| LIFO firms have higher gross profit margins than FIFO firms do. |
|
C)
| FIFO firms will have greater stockholder's equity than LIFO firms do. |
|
The FIFO method of inventory accounting assigns the cost of the earliest units acquired to goods transferred out and the cost of most recent acquisitions to ending inventory. When prices are rising, the cheaper goods in beginning inventory reflecting earlier purchases are assigned to COGS (hence, higher income and higher shareholder's equity through retained earnings.)
Explanations for other choices:
In periods of rising prices and inventory levels (all else constant):- FIFO firms have lower debt to equity ratios than LIFO firms do because stockholder's equity is higher and debt is constant.
- LIFO firms have lower gross profit margins ((Sales-COGS)/Sales) because the more expensive last purchases are assigned to COGS, lowering the numerator.
作者: bapswarrior 时间: 2012-3-28 17:41
In periods of rising prices and stable or increasing inventory quantities, using the LIFO method for inventory accounting compared to FIFO will have: A)
| higher COGS, lower income, lower cash flows, and lower inventory. |
|
B)
| higher COGS, lower income, higher cash flows, and lower inventory. |
|
C)
| lower COGS, higher income, identical cash flows, and lower inventory. |
|
In periods of rising prices and stable or increasing inventory quantities, the LIFO method – as compared with FIFO – will result in higher COGS, lower taxes, lower net income, lower inventory balances, lower working capital, and higher cash flows.
作者: bapswarrior 时间: 2012-3-28 17:41
In periods of rising prices and stable or increasing inventory quantities, a company using LIFO rather than FIFO will report cost of goods sold and cash flows which are, respectively:
In this situation, LIFO results in higher cost of goods sold because it uses the more recent and higher costs than FIFO. LIFO results in higher cash flows because with lower reported income, income tax will be lower.
作者: bapswarrior 时间: 2012-3-28 17:42
During periods of declining prices, which inventory method would result in the highest net income?
When prices are declining and LIFO is used the COGS is smaller than if FIFO is used leading to a larger net income.
作者: bapswarrior 时间: 2012-3-28 17:42
In general, when analyzing profitability and costs, or when analyzing asset and equity ratios, which of the following should be used?
| Profitability/Cost Ratios | Asset/Equity Ratios |
In general, an analyst should use LIFO when examining profitability or cost ratios and FIFO when examining asset or equity ratios.
作者: bapswarrior 时间: 2012-3-28 17:42
Which of the following statements regarding inventory accounting methods is most accurate? In periods of: A)
| rising prices and stable unit purchases, using the LIFO method results in a lower current ratio than the FIFO method. |
|
B)
| declining prices FIFO results in higher net income than LIFO. |
|
C)
| rising prices and stable unit purchases, using the FIFO method results in higher inventory turnover than the LIFO method. |
|
In periods of rising prices LIFO results in lower current assets because the ending inventory is based on inventory items that were purchased first at a lower price.
作者: bapswarrior 时间: 2012-3-28 17:43
During periods of rising prices: A)
| LIFO Gross Profit Margin > FIFO Gross Profit Margin. |
|
B)
| LIFO Inventory Turnover < FIFO Inventory Turnover. |
|
C)
| LIFO Debt to Equity Ratio > FIFO Debt to Equity Ratio. |
|
FIFO inventory, and therefore FIFO assets and equity, will be higher by the LIFO reserve.
作者: bapswarrior 时间: 2012-3-28 17:43
Which of the following statements concerning a period of rising prices is least accurate? A)
| Inventory turnover is less using the last in, first out (LIFO) inventory valuation method than using the first in, first out (FIFO) method. |
|
B)
| The debt-to-equity ratio is greater using the last in, first out (LIFO) inventory valuation method than using the first in, first out (FIFO) method. |
|
C)
| Gross profit using the last in, first out (LIFO) inventory valuation method is less than the gross profit using the first in, first out (FIFO) method. |
|
LIFO results in lower inventory and higher cost of goods sold (COGS) during a period of rising prices, hence a higher inventory turnover
作者: bapswarrior 时间: 2012-3-28 17:44
Assume that Hunter Round Restaurant Supply currently uses the last in, first out (LIFO) method to account for inventory and that the business environment is one of rising prices and stable or growing inventory balances. In addition, Hunter Round has an effective tax rate of zero percent due to tax loss carrybacks. All else equal, which of the following statements is least likely valid? By using LIFO instead of first in, first out (FIFO), Hunter Round has: |
|
C)
| lower working capital. |
|
In the absence of taxes, there is no difference in cash flow between LIFO and FIFO. The other statements are true. For the examination, memorize the financial impact of rising and falling prices for the two inventory methods.
作者: bapswarrior 时间: 2012-3-28 17:44
Assuming high inflation in the short run and lower levels of inflation in the long run, the current ratio of a company using last in, first out (LIFO) relative to a firm using first in, first out (FIFO), will be: A)
| lower, and the difference between the two firms' current ratios will decrease as inflation decreases. |
|
B)
| lower, and the difference between the two firms' current ratios will increase as inflation decreases. |
|
C)
| higher, and the difference between the two firms' current ratios will decrease as inflation decreases. |
|
The LIFO firm's current ratio will be lower and the difference between the two firms' current ratios will increase as inflation decreases. For example, assume purchases equal sales so the quantity of inventory is constant. Inventory value under LIFO will also remain constant as inflation decreases, whereas FIFO inventory value will increase even as the inflation rate decreases. As long as inflation remains positive, the FIFO inventory value and the difference between LIFO and FIFO inventory values will increase, as will the difference between the LIFO and FIFO firms' current ratios.
作者: bapswarrior 时间: 2012-3-28 17:45
Tim Rogers is senior equity analyst with White Capital LLP. While analyzing the financial statements of Drako Toys Inc., a toy manufacturer based in Cleveland, Ohio, Tim concludes that Drako is expected to see above-average sales growth over the next three years. Which of the following conditions most likely support Tim’s conclusion? A)
| Finished goods inventory growing faster than sales in the last two years. |
|
B)
| Increase in raw-materials and work-in-progress inventory and corresponding decline in finished goods inventory over the last two years. |
|
C)
| Increase in finished goods inventory and corresponding decline in raw-materials and work-in-progress inventory over the last two years. |
|
An increase in raw materials and/or work-in-process inventory is probably an indication of an expected increase in demand. Conversely, an increase in finished goods inventory, while raw materials and work-in-process are decreasing, may be an indication of decreasing demand. Finished goods inventory that is growing faster than sales may be an indication of declining demand.
作者: bapswarrior 时间: 2012-3-28 17:46
Jim Banaji, credit analysts for HEQ, a fixed income fund, is evaluating three bonds. One of the bonds, issue by Prime Inc, a large printing and packaging company, has six years remaining to maturity and has limited liquidity in the market. While evaluating the financial statements of Prime, Banaji notices the following:
Excerpts (Financial statements for years 20X9 and 20X8)
| ($'000) | 20X9 | 20X8 |
| Sales | 11300 | 10800 |
| ROE | 12% | 11.6% |
| R&D expense | 288 | 381 |
| Inventory: | | |
| Finished goods | 492 | 368 |
| Raw Materials | 329 | 324 |
| Dividends | 144 | 132 |
Based on the information gathered, which of the following conclusions are most likely?A)
| Sales are expected to decrease in the future or grow at a slower pace. |
|
B)
| Sales are expected to grow at a more rapid pace in the future. |
|
C)
| Profits are expected to grow at a more rapid pace. |
|
Sales are expected to grow at a slower pace (or decrease). This is evidenced by growth in finished goods inventory accompanied with a stable raw materials inventory (as a proportion of sales).
作者: bun789 时间: 2012-5-21 15:38
回复 1# bigredhockey55
thank you very much
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