CH8 Part II

The LIFO inventory cost flow method may be applied to which of the following inventory systems? - Periodic - Perpetual - Both - Neither

- Both

The weighted average for the year inventory cost flow method is applicable to which of the following inventory systems? - Periodic - Perpetual - Both - Neither

- Periodic

Which of the following is not a disadvantage of the LIFO method? All of the answer choices are disadvantages of the LIFO method. Tax consequences when involuntary liquidation occurs. Lower earnings relative to the FIFO method. Understated inventory reported on the balance sheet.

All of the answer choices are disadvantages of the LIFO method.

Which of the following is not considered an advantage of LIFO when prices are rising? A company's future reported earnings will not be affected substantially by future price declines. The inventory will be overstated. There will be a deferral of income tax. The more recent costs are matched against current revenues.

The inventory will be overstated.

The acquisition cost of a heavily used raw material changes frequently. The carrying amount of the inventory of the material at year-end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the carrying amount is computed under A. Weighted average method B. First-in, first-out method C. Last-in, first out method D. Base-stock method

B. First-in, first-out method

In a periodic inventory system that uses the weighted average cost flow method, the beginning inventory is A. Net purchases minus the ending inventory B. Net purchases minus the cost of goods sold C. Total goods available for sale minus net purchases D. Total goods available for sale minus the cost of goods sold

C. Total goods available for sale minus net purchases

Ordinarily, which inventory costing method approximates most closely the current cost for each of the following? COGS EI LIFO FIFO LIFO LIFO FIFO FIFO FIFO LIFO

COGS EI LIFO FIFO

During periods of inflation, a perpetual inventory system will result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost-flow assumptions? FIFO LIFO Both Neither

FIFO

Which of the following statements related to the FIFO method is incorrect? FIFO is not preferable in situations where it has been traditional. FIFO is appropriate where prices tend to lead costs. FIFO is not appropriate in situations where specific identification is traditional. FIFO is preferable if revenues have been increasing slower than costs.

FIFO is appropriate where prices tend to lead costs.

The ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the: LIFO method. moving-average method. FIFO method. weighted-average method

FIFO method.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is weighted-average. LIFO. base stock. FIFO.

FIFO.

In a period of rising prices, LIFO will result in a higher income tax expense than FIFO. True or False

False

LIFO would be appropriate when prices charged to customers tend to lag behind costs paid to suppliers. True or False

False

Which of the following statements related to the LIFO method is incorrect? LIFO is preferable if revenues have been increasing faster than costs. LIFO is appropriate where prices tend to lag behind costs. LIFO is not appropriate in situations where specific identification is traditional. LIFO is preferable in situations where it has been traditional.

LIFO is appropriate where prices tend to lag behind costs.

Which of the following statements related to the LIFO method is incorrect? LIFO is appropriate where prices tend to lag behind costs. LIFO is not appropriate in situations where specific identification is traditional. LIFO is preferable if revenues have been increasing faster than costs. LIFO is preferable in situations where it has been traditional.

LIFO is appropriate where prices tend to lag behind costs.

Select the correct statement concerning LIFO liquidations from the following. LIFO liquidations seldom distort net income and do not result in substantial tax payments. LIFO liquidations seldom distort nets income and may result in substantial tax payments. LIFO liquidations often distort net income and do not result in substantial tax payments. LIFO liquidations often distort net income and may result in substantial tax payments.

LIFO liquidations often distort net income and may result in substantial tax payments.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the: Average cost method. LIFO perpetual method. LIFO periodic method. FIFO perpetual method

LIFO periodic method.

An erosion of LIFO inventory layers is referred to as a LIFO Liquidation. Allowance. Reserve. Effect.

Liquidation

As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices?

Smaller

Allows for manipulation of income when a company has duplicate items in inventory at different costs (often due to inflation) as the company may choose to record the sale of least expensive or most expensive item.

Specific Identification

Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold? LIFO FIFO Average Specific identification

Specific identification

LIFO basis assumes that the most recently purchased items are the first to be sold. Thus, LIFO is a better approximation of current cost of good sold than FIFO True/False

True

Which statement about specific identification is true? a) Generally used when a company has a small number of distinctive and very costly items in inventory (e.g., jewelry, fur coats, custom orders, etc.) b) Does not allow for manipulation when a company has duplicate items in inventory at different costs c) Each specific inventory item is not identified and its costs are not included in inventory on hands until the item is sold

a) Generally used when a company has a small number of distinctive and very costly items in inventory (e.g., jewelry, fur coats, custom orders, etc.)

All of the following are advantages of LIFO except: an approximation of the physical flow of goods is achieved. a deferral of income tax occurs as long as the price level increases. an improvement of cash flow. recent costs are matched against current revenues.

an approximation of the physical flow of goods is achieved.

Which statement about LIFO is false? a) There is a tax benefit to reduced earnings from the use of LIFO b) LIFO does not generally reflect the actual physical flow of inventory where older inventory is generally first c) LIFO is generally preferable to FIFO when selling prices and revenues have been increasing slower than costs d) LIFO understates inventory value because the inventory is valued at old costs

c) LIFO is generally preferable to FIFO when selling prices and revenues have been increasing slower than costs

All of the following are major disadvantages of using LIFO, except: doesn't approximate the physical flow of inventory. lower profits reported in inflationary times. inventory is understated. future earnings will not be affected substantially by future price declines.

future earnings will not be affected substantially by future price declines.