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.
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
A)
Increases
Increases
B)
Decreases
Increases
C)
Decreases
Decreases
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.
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)?
A)
Higher cash flows.
B)
Higher taxes.
C)
Lower COGS.
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.
Which inventory method will provide the largest net income during periods of falling prices?
A)
LIFO.
B)
Weighted average cost.
C)
FIFO.
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.
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:
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.
B)
LIFO.
C)
FIFO.
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.
发表于 2012-3-28 15:09
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