Q1. Premier Corp.’s year-end last in, first out (LIFO) reserve was $2,500,000 in 2000 and $2,300,000 in 2001. Premier’s $200,000 decline in the LIFO reserve could be explained by each of the following EXCEPT:

A)   the LIFO reserve was being amortized.

B)   a LIFO liquidation occurred.

C)   declining inventory prices.

Q2. In a period of rising prices, LIFO liquidation results in:

A)   increase in inventory.

B)   higher earnings.

C)   lower earnings.

Q3. Which of the following is least likely to happen after a last in, first out (LIFO) liquidation in an environment of rising prices?

A)   Increase gross income.

B)   Increase cost of goods sold (COGS).

C)   Increase taxable income.

Q4. In periods of falling prices, which of the following statements is TRUE? Compared to FIFO, LIFO results in:

A)   higher inventory balances and higher working capital.

B)   lower COGS, lower taxes and higher net income.

C)   higher inventory balances and lower working capital.

Q5. In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:

A)   not make any adjustments.

B)   adjust the income statement, regardless of the reasons for the decline.

C)   adjust the income statement, only if such a decline is due to LIFO liquidation.

Q6. LIFO liquidation may result when:

A)   purchases are less than goods sold.

B)   purchases are more than goods sold.

C)   cost of goods sold is less than the available inventory.

答案和详解如下：

Q1. Premier Corp.’s year-end last in, first out (LIFO) reserve was $2,500,000 in 2000 and $2,300,000 in 2001. Premier’s $200,000 decline in the LIFO reserve could be explained by each of the following EXCEPT:

A)   the LIFO reserve was being amortized.

B)   a LIFO liquidation occurred.

C)   declining inventory prices.

Correct answer is A)

A decline in the LIFO reserve occurs when the increasing prices that created the reserve begin declining or when the inventory is liquidated (i.e. less units in inventory at the end of the year than at the beginning). LIFO reserves are not amortized.

Q2. In a period of rising prices, LIFO liquidation results in:

A)   increase in inventory.

B)   higher earnings.

C)   lower earnings.

Correct answer is B)

Since older layers of inventory that are liquidated were purchased at lower prices, the cost of goods sold will be lower and earnings will be higher.

Q3. Which of the following is least likely to happen after a last in, first out (LIFO) liquidation in an environment of rising prices?

A)   Increase gross income.

B)   Increase cost of goods sold (COGS).

C)   Increase taxable income.

Correct answer is B)

In a LIFO liquidation, a firm allows inventory to decrease so that it is using lower-cost materials (purchased in the past). This will lower the COGS and increase income and profit. This is one of the ways that a firm’s management can manipulate earnings.

Q4. In periods of falling prices, which of the following statements is TRUE? Compared to FIFO, LIFO results in:

A)   higher inventory balances and higher working capital.

B)   lower COGS, lower taxes and higher net income.

C)   higher inventory balances and lower working capital.

Correct answer is A)

In periods of falling prices, LIFO results in lower COGS, higher taxes, higher net income, higher inventory balances, higher working capital, and lower cash flows compared to FIFO.

Q5. In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:

A)   not make any adjustments.

B)   adjust the income statement, regardless of the reasons for the decline.

C)   adjust the income statement, only if such a decline is due to LIFO liquidation.

Correct answer is C)

A decline in LIFO reserve is due to either falling prices or LIFO liquidations. In the case of LIFO liquidation, the income statement does not reflect the current costs and should be adjusted. In the case of falling prices, the LIFO income statement amounts are current and do not need adjustment.

Q6. LIFO liquidation may result when:

A)   purchases are less than goods sold.

B)   purchases are more than goods sold.

C)   cost of goods sold is less than the available inventory.

Correct answer is A)

For LIFO companies, when more goods are sold than are purchased during a period, the goods held in opening inventory are in included in COGS. This will result in LIFO liquidation.

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