Q1. 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.

Q2. 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:

A)   higher cash flows.

B)   lower net income.

C)   lower working capital.

Q3. 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:

            COGS               Cash Flows

A)    Lower                                  Lower

B)    Higher                                 Lower

C)    Higher                                 Higher

Q4. 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.

Q5. 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)   higher earnings before taxes than under last in, first out (LIFO).

C)   lower inventory balances than under last in, first out (LIFO).

答案和详解如下：

Q1. 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.

Correct answer is B)

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.

Q2. 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:

A)   higher cash flows.

B)   lower net income.

C)   lower working capital.

Correct answer is A)

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.

Q3. 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:

            COGS               Cash Flows

A)    Lower                                  Lower

B)    Higher                                 Lower

C)    Higher                                 Higher

Correct answer is C)

In this situation, LIFO results in higher cost of goods sold because it uses the more recent and higher costs than LIFO. LIFO results in higher cash flows because with lower reported income, income tax will be lower.

Q4. 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.

Correct answer is C)

Under the assumptions of this question and using LIFO, the most expensive units go to COGS, resulting in lower net income.

Q5. 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)   higher earnings before taxes than under last in, first out (LIFO).

C)   lower inventory balances than under last in, first out (LIFO).

Correct answer is C)

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.