Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 23, Problem 2Q
Summary Introduction
To indicate: The given events may cause the average annual inventory holdings to fall, rise, or be affected by using the symbols +, -,0.
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Indicate by a (1), (2), or (0) whether each of the following events wouldprobably cause average annual inventory holdings to rise, fall, or be affectedin an indeterminate manner:a. Our suppliers change from delivering by train to air freight. __________
The management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense.
Assuming that the price the company pays for inventory is increasing, which method will:
(a) provide the highest net income?
(b) provide the highest ending inventory?
|(c) result in the lowest income tax expense?
(d) result in the most stable earnings over a number of years?
During a period of rising inventory costs and stable output prices, describe how net income and total assets would differ depending upon whether LIFO or FIFO is applied. Explain how your answer would change if the company is experiencing declining inventory costs and stable output prices.
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- What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy b. A stable inventory policyarrow_forwardIndicate by a (1), (2), or (0) whether each of the following events wouldprobably cause average annual inventory holdings to rise, fall, or be affectedin an indeterminate manner:b. We change from producing just-in-time to meet seasonaldemand to steady, year-round production. __________arrow_forwardIndicate by a (1), (2), or (0) whether each of the following events wouldprobably cause average annual inventory holdings to rise, fall, or be affectedin an indeterminate manner: c. Competition in the markets in which we sell increases. __________arrow_forward
- 2 The management of Norton Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? (b) result in the most stable earnings over a number of years? (c) result in the lowest income tax expense? (d) provide the highest ending inventory?arrow_forwardWhich of the following is false? Question 33 options: a) Inventory turnover ratio is calculated by dividing COGS by the average value of inventory over the period. b) Inventory ratio is equal to the number of times inventory was completely purchased and sold (turned over) during the period. c) Higher days' sales in inventory means that inventory is less likely to become obsolete because it is sold in fewer days d) Days' sales in inventory is equal to the average number of days it takes to sell inventory.arrow_forwardWhich one of the following is a reason for the just-in-time inventory policy? Select one: O A. The manufacturer may want to ensure that production is uninterrupted. O B. It is possible that future supplies may become scarce. O C. The manufacturer wants to keep the investment in inventory to a minimum. D. The prices of the materials are expected to rise shortly. Clear my choicearrow_forward
- Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year. Seleccione una: O Verdadero O Falso searcharrow_forward13.In periods of rising prices, which is an advantage of using the LIFO inventory costing method? a. Ending inventory will include latest (most recent) costs and thus be more realistic. b. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. C. Net income will be the highest and thus reflect the prosperity of the company. d. Phantom profits are reported. 14 In a period of increasing prices, which inventory flow assumption will result in the lowestarrow_forwardThis year your company has purchased less expensivemerchandise inventory but has not changed its sellingprices. What effect will this change have on the company’sgross profit percentage this year, in comparison to lastyear?a. The ratio will not change.b. The ratio will increase.c. The ratio will decrease.d. Cannot determinearrow_forward
- Which one of the following is a reason for the just- in-time inventory policy? Select one: A. The manufacturer may want to ensure that production is uninterrupted. B. It is possible that future supplies may become scarce. C. The manufacturer wants to keep the investment in inventory to a minimum. D. The prices of the materials are expected to rise shortly.arrow_forwardThe management of Milque Corp. is considering the effects of inventory-costing methods on its financial statements and its income tax expense. Assuming that the cost the company pays for inventory is increasing, which method will: (a) (b) (c) Provide the highest net income? Provide the highest ending inventory? Result in the lowest income tax expense? 10arrow_forwardTh e Industry and Business Risk excerpt states that, “Increased competition may lead tolower unit sales and excess production capacity and excess inventory. Th is may result in afurther downward price pressure.” Th e downward price pressure could lead to inventorythat is valued above current market prices or net realizable value. Any write-downs ofinventory are least likely to have a significant eff ect on the inventory valued using:A. weighted average cost.B. first-in, first-out (FIFO).C. last-in, first-out (LIFO).arrow_forward
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