Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling prices

Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling prices

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 15DQ: How would reported income differ if LIFO rather than FIFO were used when purchase prices are rising?...

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For each of the following cases, state whether the statement is true for LIFO or for FIFO. Assume that prices are rising. (a) Results in a higher quality of earnings ratio. (b) Results in lower net cash provided by operating activities. (c) Results in higher net income. (d) Results in lower taxes. (e) Results in higher phantom profits.
Contrast the effects that LIFO vs. FIFO would have on ending inventory, net income and cash flow in a period in which prices are rising?
Can you explain why the answer is B and not C. If inventory prices are decreasing wouldnt LIFO result in a lower COGS and which would lead to a higher Net income thus higher income tax expense?
Which of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.
Which of the following statements is true? Select one: a. The cost flow assumption used must match the physical flow of goods through the firm. b. Firms that use LIFO for tax purposes must also use it for book purposes. c. The Weighted Average Method can lead to phantom profits in periods of rising prices. d. There is a big difference in CGS for the different methods when a firm has high inventory turnover. PreviousSave AnswersNext
Explain how LIFO, FIFO, and Weighted average inventory systems will have different affects on a firm’s income statement and balance sheet. If a firm was concerned about reducing their tax burden, which inventory system would best benefit them? Assume costs have been steadily rising over time.
Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial sector’s lending to measure value added in the financial sector, i.e. what we called gross profits. How will these two measures differ in terms of size and sensitivity to risk? Can you give differing views of a world without finance for each to be the proper measure of value added? [Note these are two different statistics which are designed to measure the same number so if they differ at least one of is incorrect.]
Which of the following statements are false? Select all that apply a. Liquidity ratios are used to measure the speed with which various accounts are converted into sales. b. When ratios of different years are being compared, inflation should be taken into consideration c. Return on total assets (ROA) is sometimes called return on investment d. Generally, inventory is concerned with the most liquid asset that a firm possesses. e. A P/E ratio of 20 indicates that investors are willing to pay $20 for each $1 of earnings.
Financial leverage indicates - O a. The tendency of sales to vary disproportionately with fixed cost. O b. The tendency of profit before tax (PBT) to vary disproportionately with operating profit (EBIT). OC. The tendency of profit before tax (PBT) to vary disproportionately with sales. Od. The tendency of profit after tax (PAT) to vary disproportionately with fixed cost.
Which TWO of the following are possible effects of rising prices upon financial statements? Understatement of capital employed Overstatement of capital employed Overstatement of profits Understatement of profits
A firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an accounting reason that would cause the market-to-book ratio to increase is a. straight-line methods of depreciation. b. using LIFO versus FIFO for inventory. c. level 1 fair values. d. off-balance-sheet assets arising from investments in successful research and development programs that are expensed according to conservative accounting principles.
Which of the following statements is correct? A. If assets and spontaneously generated liabilities are not projected to grow at the same rate as sales, then the AFN method will provide more accurate forecasts than the projected financial statement method. B. Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast. C. A negative AFN indicates that retained earnings and spontaneous capital are far more than sufficient to finance the additional assets needed. D. AFN is defined as the funds that a firm must raise internally. E. The AFN equation for forecasting funds requirements requires only a forecast of the firm’s balance sheet. Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.