16.Assume that inventory costs are increasing in line with an overall inflation rate of 3 percent. If a firm reports inventory using the last in, first out (LIFO) method, which of the following is most accurate?

A)   Lower profits and lower taxes are reported because new inventory is flowing out to COGS.

B)   LIFO reserve measures the accumulation of taxes paid.

C)   The less expensive inventory is flowing out to COGS.

D)   LIFO reserve measures the accumulation of profits recognized by the firm.

17.

                                        The UNI Company Balance Sheet

                                            As of December 31, 2002

                                                    (in millions)

                    The UNI Company Income Statement

                     For year ended December 31, 2002

                                    (in millions)

Additional information:

§ UNI uses the last in first out (LIFO) inventory valuation method. The LIFO reserve is $20 for 2002 and $10 for 2001.

§ UNI leases equipment. These leases are classified as operating leases and require annual, end-of-year payments of $10 million for each of the next 5 years.

The balance in inventory at the end of 2002 using first in first out (FIFO) inventory valuation is:

A)   $180 million.

B)   $200 million.

C)   $190 million.

D)   $210 million.

18.MKF Consolidated reports $500 million in goodwill on its balance sheet. The market consensus indicates that the value of MKF’s intangible assets is $300 million. How should an analyst adjust MKF’s balance sheet? Reduce goodwill and:

A)   equity by $200 million.

B)   equity by $500 million.

C)   increase liabilities by $200 million.

D)   increase liabilities by $500 million.

19.What does the LIFO reserve measure?

A)   The results of older inventory flowing to cost of goods sold (COGS).

B)   The overstatement relative to the current cost of inventory.

C)   The accumulated difference between the reported inventory balance and the cost of that inventory if first in, first out (FIFO) had been used.

D)   The accumulated difference between taxes payable and income tax expense.

20.Pacific Sugar Corp. (PSC) shows balances of $35 million and $415 million for its notes payable and long-term debt, respectively. However, a footnote to the financial statements indicates that the market value of the notes and the long-term debt are $32 million and $398 million, respectively. What are the appropriate balance sheet adjustments need to adequately reflect the commitment?

A)   Reduce notes payable by $3 million, reduce long-term debt by $17 million.

B)   Reduce notes payable by $3 million, reduce long-term debt by $17 million, and increase cash by $20 million.

C)   Reduce notes payable by $3 million, reduce long-term debt by $17 million, and increase equity by $20 million.

D)   There is no need to adjust notes payable and long-term debt to reflect market values.

答案和详解如下：

16.Assume that inventory costs are increasing in line with an overall inflation rate of 3 percent. If a firm reports inventory using the last in, first out (LIFO) method, which of the following is most accurate?

A)   Lower profits and lower taxes are reported because new inventory is flowing out to COGS.

B)   LIFO reserve measures the accumulation of taxes paid.

C)   The less expensive inventory is flowing out to COGS.

D)   LIFO reserve measures the accumulation of profits recognized by the firm.

The correct answer was A)    

LIFO firm reports lower profits and lower taxes because all of the new, mores expensive inventory is flowing out to COGS thus, LIFO reserve measures the accumulation of taxes not paid and profits not recognized.

17.

                                        The UNI Company Balance Sheet

                                            As of December 31, 2002

                                                    (in millions)

	2001	2002			2001	2002
Cash	$50	$60		Accounts payable	$100	$150
Accounts receivable	100	110		Long-term debt	400	300
Inventory	200	180		Common Stock	50	50
				Retained earnings	400	500
Fixed assets (gross)	800	900		Total liabilities and equity	$950	$1,000
Accumulated depreciation	200	250
Fixed assets (net)	600	600
Total assets	$950	$1,000

                    The UNI Company Income Statement

                     For year ended December 31, 2002

                                    (in millions)

Sales	$1,000
Cost of goods sold	600
Depreciation	50
Selling, general, and administrative expenses	160
Interest expense	23
Income before taxes	$167
Tax	67
Net income	$100

Additional information:

§ UNI uses the last in first out (LIFO) inventory valuation method. The LIFO reserve is $20 for 2002 and $10 for 2001.

§ UNI leases equipment. These leases are classified as operating leases and require annual, end-of-year payments of $10 million for each of the next 5 years.

The balance in inventory at the end of 2002 using first in first out (FIFO) inventory valuation is:

A)   $180 million.

B)   $200 million.

C)   $190 million.

D)   $210 million.

The correct answer was B)

FIFO inventory = LIFO inventory + LIFO reserve
FIFO inventory = $180 + 20 = $200

18.MKF Consolidated reports $500 million in goodwill on its balance sheet. The market consensus indicates that the value of MKF’s intangible assets is $300 million. How should an analyst adjust MKF’s balance sheet? Reduce goodwill and:

A)   equity by $200 million.

B)   equity by $500 million.

C)   increase liabilities by $200 million.

D)   increase liabilities by $500 million.

The correct answer was A)

If goodwill has no economic value apart from the firm, it should be eliminated from the balance sheet. If the value of the intangibles can be reliably estimated they can be substituted for accounting goodwill.

19.What does the LIFO reserve measure?

A)   The results of older inventory flowing to cost of goods sold (COGS).

B)   The overstatement relative to the current cost of inventory.

C)   The accumulated difference between the reported inventory balance and the cost of that inventory if first in, first out (FIFO) had been used.

D)   The accumulated difference between taxes payable and income tax expense.

The correct answer was C)

The LIFO reserve measures the accumulated difference between the reported inventory balance and the cost of that inventory if FIFO had been used.

20.Pacific Sugar Corp. (PSC) shows balances of $35 million and $415 million for its notes payable and long-term debt, respectively. However, a footnote to the financial statements indicates that the market value of the notes and the long-term debt are $32 million and $398 million, respectively. What are the appropriate balance sheet adjustments need to adequately reflect the commitment?

A)   Reduce notes payable by $3 million, reduce long-term debt by $17 million.

B)   Reduce notes payable by $3 million, reduce long-term debt by $17 million, and increase cash by $20 million.

C)   Reduce notes payable by $3 million, reduce long-term debt by $17 million, and increase equity by $20 million.

D)   There is no need to adjust notes payable and long-term debt to reflect market values.

The correct answer was C)

Reduce notes payable by $3 million, reduce long-term debt by $17 million, and increase equity by $20 million.