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Reading 35: Inventories - LOS c, (Part 2) ~ Q1-5

Q1. Which inventory method will provide a larger net income during periods of falling prices?

A)   Specific Items.

B)   LIFO.

C)   FIFO.

Q2. 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 taxes.

B)   Lower COGS.

C)   Higher cash flows.

Q3. Which of the following statements regarding the different inventory methods is FALSE?

A)   FIFO is more accurate for income statement purposes.

B)   FIFO is preferable for tax purposes when prices are falling.

C)   The weighted average method is not sensitive to price changes

Q4. If all else holds constant in periods of rising prices and inventory levels:

A)   FIFO firms will have greater stockholder's equity than LIFO firms do.

B)   FIFO firms have higher debt to equity ratios than LIFO firms do.

C)   LIFO firms have higher gross profit margins than FIFO firms do.

Q5. 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)  Decreases                              Decreases

B)  Increases                                Increases

C)  Decreases                              Increases

d

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