1.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.

B)   lower earnings.

C)   an increase in the leverage multiplier.

D)   an increase in the LIFO reserve.

2.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 of $2,004

What is the ending LIFO reserve?

A)   $4,468.

B)   $500.

C)   $2,484.

D)   $1,984.

3.LIFO liquidation may result when:

A)   purchases are more than goods sold.

B)   purchases are equal to the goods sold.

C)   cost of goods sold is less than the available inventory.

D)   purchases are less than goods sold.

4.In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:

A)   adjust the income statement, only if such a decline is due to falling prices.

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.

D)   not make any adjustments.

5.In periods of falling prices, which of the following statements is TRUE? Compared to FIFO, LIFO results in:

A)   higher inventory balances and lower working capital.

B)   lower COGS, lower taxes and higher net income.

C)   higher inventory balances and higher working capital.

D)   higher COGS, lower taxes and higher net income.

答案和详解如下：

1.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.

B)   lower earnings.

C)   an increase in the leverage multiplier.

D)   an increase in the LIFO reserve.

The correct answer was A)

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  In this case the prices for goods that are being sold are no longer recent prices and can be many years out of date.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. 

2.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 of $2,004

What is the ending LIFO reserve?

A)   $4,468.

B)   $500.

C)   $2,484.

D)   $1,984.

The correct answer was A)

Ending LIFO Reserve = (LIFO COGS − FIFO COGS) + Beginning LIFO Reserve
= ($3,988 − $2,004) + $2,484
= $4,468

3.LIFO liquidation may result when:

A)   purchases are more than goods sold.

B)   purchases are equal to the goods sold.

C)   cost of goods sold is less than the available inventory.

D)   purchases are less than goods sold.

The correct answer was D)

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.

4.In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:

A)   adjust the income statement, only if such a decline is due to falling prices.

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.

D)   not make any adjustments.

The correct answer was C)

A decline in LIFO reserve is due to either falling prices or LIFO liquidations. The response of the analyst should not be the same in both cases. 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.

5.In periods of falling prices, which of the following statements is TRUE? Compared to FIFO, LIFO results in:

A)   higher inventory balances and lower working capital.

B)   lower COGS, lower taxes and higher net income.

C)   higher inventory balances and higher working capital.

D)   higher COGS, lower taxes and higher net income.

The correct answer was C)

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.