1. Company X uses FIFO for its inventory valuation and Company Y uses LIFO under U.S.GAAP, all other respects are identical. If the prices are rising, Company X is most likely to have a higher: A. Tax liability B. Inventory turnover C. CFO | Ans: A When prices are rising:
FIFO: The cost of the first item purchased is the cost of the first item sold. Ending inventory is based on the cost of the most recent purchases, thereby approximating current cost. LIFO: The cost of the last item purchased is the cost of the first item sold. Ending inventory is based on the cost of the earliest items purchased. So when prices are rising, FIFO results in a lower COGS. FIFO also results in lower inventory turnover (due to lower COGS and higher inventory balances), a higher tax liability (due to a higher pretax income) and a lower CFO (due to the higher tax payments). B. Company X uses FIFO so its inventory turnover should be lower due to lower COGS and higher inventory balances. C. Company X uses FIFO so its CFO should be lower due to the higher tax payments. |
6. The following information is available about a manufacturing company:
If the company is using International Financial Reporting Standards (IFRS), instead of U.S. GAAP, its cost of goods sold ($ millions) is most likely: A. the same. B. 0.3 lower. C. 0.3 higher. | Ans: A. Under IFRS, the inventory would be written down to its net realizable value ($4.1 million), whereas under U.S. GAAP, market is defined as current replacement cost and hence would be written down to its current replacement cost ($3.8 million). The smaller write down under IFRS will reduce the amount charged to the cost of goods sold, as compared with U.S. GAAP, and result in a lower cost of goods sold of $0.3 million. | |||||||||
8. A company’s information from its first year of operation is as follows:
Using a periodic inventory system and the weighted average method, the ending inventory value is closest to: A. $11,975. B. $12,165. C. $12,700. | Ans: A.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
9. A company incurs the followings costs related to its inventory during the year:
The amount charged to inventory cost (in millions) is closest to: A. ￥175,000. B. ￥177,000. C. ￥185,000. | Ans: A. The costs to include in inventories are all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.
|
11. A company which prepares its financial statements using IFRS wrote down its inventory value by €20,000 in 2009. In 2010, prices increased and the same inventory was worth €30,000 more than its value at the end of 2009. Which of the following statements is most accurate? In 2010, the company’s cost of sales: A. was unaffected. B. decreased by €20,000. C. decreased by €30,000. | Ans: B. Under IFRS, inventory is reported on the balance sheet at the lower cost or net realizable value. Net realizable value is equal to the expected sales price less the estimated selling costs and completion costs. If net realizable value is less than the balance sheet value f inventory, the inventory is “write down” to net realizable value and the loss is recognized in the income statement. Is there is a subsequent recovery in value, the inventory can be “write up” and the gain is recognized in the income statement by reducing COGS by the amount of the recovery. Because inventory is valued at the lower of cost or net realizable value, inventory cannot be written up by more than it was previously written down. In this question, the recovery of previous write-down is limited to the amount of the original write-down (€20,000) and is reported as a decrease in the cost of sales. |
12. A U.S. pulp brokerage firm which prepares its financial statements according to U.S. GAAP and uses a periodic inventory system had the following transactions during the year:
The cost of sales (in ‘000s) is closest to: A. $3,850 using FIFO. B. $4,080 using LIFO. C. $5,890 using weighted average. | Ans: A.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
17. During the past year, a company’s production facility was operating at 75% of capacity. The firm’s costs were as follows:
The firm ended the year with no remaining work-in-process inventory. The total capitalized inventory cost (in $ millions) for the year is closest to: A. 13.25. B. 15.25. C. 16.00. | Ans: A.
| |||||||||||||||||||||||||
19. A retail company prepares its financial statements in accordance with U.S. GAAP (generally accepted accounting principles). Its purchases and sales of inventory for its first two years of operations are listed below.
In its second year of operation, the company’s ending inventory is $348,003. Which of the following inventory cost flow assumptions is the company was most likely using? A. FIFO B. LIFO C. Weighted average cost | Ans: C. The company is accounting for its inventory using the weighted average cost method. In the 2nd year of operations, under Weighted Average Cost: Units available for sale include ending inventory from year 1 plus purchases for year 2: 7,000 + 100,000 = 107,000 Cost of Goods Available for Sale: 7,000 x $8.43 + 100,000 x $12.25 = $1,284,000 Unit Cost: $1,284,000/107,000 = $12.00 End Inventory = 107,000 –78,000 = 29,000 units. $12.00 x 19,000 = $348,003 |
20. An analyst gathers the following information about a company ($ millions):
If the company uses the FIFO inventory method instead of LIFO, the company’s 2012 gross profit margin is closest to: A. 22.9%. B. 29.8%. C. 33.2%. | Ans: C.
| ||||||||||||||||||||||||||||||
25. An analyst gathered the following information about a company that uses the LIFO method:
If the company had used the FIFO method instead of LIFO, the company’s 2012 net income would most likely have been: A. $21,000lower B. $9,000 lower C. $21,000higher | Ans: C. The LIFO reverse increased by $30,000 (=450,000-420,000). If an increase in the LIFO reserve occurs, LIFO COGS will be higher than FIFO by the amount of the increase. FIFO COGS = LIFO COGS – Change in LIFO reserve Net income would be lower than FIFO by $30,000(1-0.30)=$21,000. After-tax FIFO net income would be $21,000 higher. |
26. Greene Corporation uses the LIFO inventory method, but most of other companies in Greene’s industry use FIFO. Which of the following best describe one of the adjustments that would be made to Greene’s financial statements to compare that company with other companies in the industry? To adjust Greene’s inventory to the FIFO method, the amount reported for Greene’s ending inventory should be: A. increase by the ending balance in Greene’s LIFO reserve. B. decrease by the ending balance in Greene’s LIFO reserve. C. increase by the change in Greene’s LIFO reserve for that period. | Ans:A. Adding the ending balance in the LIFO reserve to the FIFO inventory would equal the ending balance for inventory on a FIFO basis. (LIFO Reserve = FIFO Inventory – LIFO Inventory ) |
27. First-In Limited (FIL), which reports under IFRS, recognized revenue of $2.2 million during the most recent fiscal year on unit sales of 152. The company had beginning inventory of 27 units (16 units at a cost of $7,500 each ad 11 units at a cost of $8,100) and acquired 164 unites during the year (the purchases are listed in chronological order below). The per unit net realizable value (NRV) of the inventory was $9,300, while the replacement cost and NRV less the normal profit margin were $9,100.
Assuming that FIL uses the FIFO method for inventory costing, the amount of inventory that will be reported on the company’s balance sheet at fiscal year-end is closest to: A. $354,900. B. $362,700 C. $370,000. | Ans: B. The first step in solving this question is to calculate the ending inventory under FIFO. Ending inventory = beginning inventory + purchase – sales =27+164-152 =39 units FIFO inventory = (32 units x $9,600) + (7 units x $9,000) = $370,200 Note that under IFRS, inventory is calculated at the lower of cost or net realizable value (NRV). In this problem, the NRV per unit is $9,300, so the total net realizable of the inventory is: Net realizable value = NRV per unit x ending inventory = $9,300 x 39 units =$362,700 The net realizable value of $362,700 is less than the FIFO cost of $370,200, so the inventory will be reported at $362,700. A is incorrect. This is the amount that would be reported as inventory under U.S.GAAP. Under U.S.GAAP, inventory is valued at the lower of cost or market, where “market” is based on the median value among the NRV, replacement cost, and NRV less a normal profit margin. In this problem, the replacement cost and NRV less a profit margin of $9,100 are less than the NRV “ceiling” of $9,300, so the market value of the inventory is: Market value = replacement cost x ending inventory = $9,100 x 39 units= $354,900 The market value of $354,900 would be reported on the balance sheet because it is less than the FIFO cost of $370,200. C is incorrect. The ending inventory balance using FIFO is $370,200. However, the NRV of the remaining 39 units should be reported on the balance sheet under IFRS, as it is lower than the FIFO cost. |
28. Which of the following would be the most useful ratio from a financial analysis perspective, rather than from an accounting perspective, assuming a rising price environment? A. Calculating the current ratio by using the current assets determined with LIFO. B. Determining the inventory turnover by using cost of goods sold prepared on a FIFO basis and average inventory prepared on a LIFO basis. C. Determining the return on assets by using net income prepared on a LIFO basis and average total assets prepared on a FIFO basis. | Ans: C. In a rising environment, the most useful ratio from a financial analysis perspective would be to calculate the return on assets by using the lower more conservative net income prepared on a LIFO basis and average assets (inventory) prepared on a FIFO basis (to include more current cost data in the inventory). A is incorrect. Calculating the current ratio with current assets determined with FIFO, not LIFO, would be most useful to a financial analyst. B is incorrect. The best measure to obtain an adjustment inventory turnover ratio would be to use cost of goods sold prepared on a LIFO basis and average inventory prepared on a FIFO basis (highest inventory). This choice is reversed. |
29. Select information from a company that uses FIFO inventory method is provided below.
If the company uses the perpetual inventory system versus the periodic inventory system, the gross margin would most likely be: A. Lower. B. Higher. C The same. | Ans: C. When using the FIFO inventory method the ending inventory, the cost of goods sold and the gross margin are the same under either the perpetual or periodic methods. |
42. During an accounting period, a company has the following sequence of transactions with a beginning inventory of zero:
The company’s COGS using FIFO for inventory accounting, and its ending inventory using LIFO, are closest to:
| Ans: A. FIFO COGS:
LIFO ending inventory:
|
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. |
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. |
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:
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:
| ||||||||||||||||||||||||||||
| 欢迎光临 CFA论坛 (http://forum.theanalystspace.com/) | Powered by Discuz! 7.2 |