Reading 36: Inventories LOS c习题精选 average, account, beginning, face, 2010

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LOS c: Compute ending inventory balances and cost of goods sold using the FIFO, weighted average cost, and LIFO methods to account for product inventory.

JME had beginning inventory of $200 and ending inventory of $300. JME had COGS of $800. JME must have purchased inventory amounting to:

A) $700.

B) $900.

C) $1,100.

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200 + X – 300 = 800

X = purchases = 900

 

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During periods of rising prices and stable or growing inventories, the most informative inventory accounting method for income statement purposes is:

A) LIFO because it allocates current prices to cost of good sold (COGS) and provides a better measure of current income.

B) weighted average because it allocates average prices to cost of good sold (COGS) and provides a better measure of current income.

C) FIFO because it allocates historical prices to cost of good sold (COGS) and provides a better measure of current income.

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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.

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For balance sheet purposes, inventories based on:

A) LIFO are preferable to those based on FIFO, as they more closely reflect the current costs.

B) LIFO are preferable to those based on average cost, as they more closely reflect the current costs.

C) FIFO are preferable to those based on LIFO, as they more closely reflect current costs.

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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.

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Which of the following statements about inventory accounting is least accurate?

A) 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.

B) If a U.S. firm uses last in, first out (LIFO) for tax reporting it must use LIFO for financial reporting.

C) 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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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.

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Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory:

• Depreciation: straight-line; double-declining balance (DDB)
• Inventory: first in, first out (FIFO); last in, first out (LIFO)

Assuming a deflationary environment (prices are falling), which of the following combinations will result in the highest net income in year 1?

A) Straight-line; LIFO.

B) DDB; FIFO.

C) Straight-line; FIFO.

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For year 1, straight-line depreciation will be lower than DDB. During deflationary periods, LIFO will result in lower cost of goods sold and hence higher income.

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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.

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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.

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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.

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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.

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Assuming inventory levels remain constant during the year and prices have been stable over time, COGS would be:

A) higher under LIFO than FIFO or average cost.

B) higher under the average cost than LIFO or FIFO.

C) the same for both LIFO and FIFO.

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During stable prices inventory levels are the same for both LIFO and FIFO.

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During inflationary periods, which of the following statements is TRUE?

A) LIFO will generate higher earnings, but lower after tax cash flows.

B) FIFO will generate higher earnings, but lower after tax cash flows.

C) LIFO will generate lower earnings, but lower after tax cash flows.

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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.

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Which is the preferred inventory method for purposes of analysis and which is the preferred method for reporting cost of goods sold?

Inventory Analysis

COGS

A) LIFO FIFO

B) FIFO LIFO

C) LIFO LIFO

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                 FIFO                         LIFO

                                                           

 Best---->\\     Inv    /                \\  COGS  / <--- Best

               \\ COGS  /                   \\   Inv   /