Q. If a company uses FIFO, how does it affect the balance sheet during inflation?
-
A.
Assets are overstated
-
B.
Liabilities are overstated
-
C.
Equity is understated
-
D.
No effect
Solution
Using FIFO during inflation can lead to an overstatement of assets on the balance sheet because older, cheaper inventory costs are recorded.
Correct Answer:
A
— Assets are overstated
Learn More →
Q. If a company uses LIFO for tax purposes, what must it also use for financial reporting?
-
A.
FIFO
-
B.
Weighted Average
-
C.
LIFO
-
D.
Specific Identification
Solution
If a company uses LIFO for tax purposes, it must also use LIFO for financial reporting due to the consistency principle.
Correct Answer:
C
— LIFO
Learn More →
Q. In a deflationary environment, which inventory method would likely result in higher profits?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
Specific Identification
Solution
In a deflationary environment, FIFO would likely result in higher profits because it matches older, lower costs against current revenues.
Correct Answer:
A
— FIFO
Learn More →
Q. In a deflationary environment, which inventory method would likely yield higher profits?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
None of the above
Solution
In a deflationary environment, FIFO would likely yield higher profits because it matches older, higher costs against revenues.
Correct Answer:
A
— FIFO
Learn More →
Q. In a period of rising prices, which inventory method typically results in lower taxable income?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
None of the above
Solution
In a period of rising prices, LIFO results in lower taxable income because it matches higher costs against revenues.
Correct Answer:
B
— LIFO
Learn More →
Q. What is the primary advantage of using FIFO during periods of inflation?
-
A.
Lower taxes
-
B.
Higher cash flow
-
C.
Higher net income
-
D.
Lower cost of goods sold
Solution
The primary advantage of using FIFO during periods of inflation is that it results in higher net income due to lower cost of goods sold.
Correct Answer:
C
— Higher net income
Learn More →
Q. What is the primary advantage of using the LIFO method?
-
A.
Higher ending inventory value
-
B.
Lower tax liability
-
C.
Easier to manage
-
D.
More accurate financial reporting
Solution
The primary advantage of using LIFO is that it can result in lower tax liability during periods of inflation.
Correct Answer:
B
— Lower tax liability
Learn More →
Q. Which inventory valuation method is not allowed under IFRS?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
Specific Identification
Solution
LIFO is not allowed under IFRS; companies must use either FIFO or Weighted Average.
Correct Answer:
B
— LIFO
Learn More →
Q. Which method would likely result in lower taxes during inflationary periods?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
Specific Identification
Solution
LIFO would likely result in lower taxes during inflationary periods because it matches higher current costs against revenues.
Correct Answer:
B
— LIFO
Learn More →
Q. Which method would likely show higher ending inventory values during inflationary periods?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
Specific Identification
Solution
FIFO would show higher ending inventory values during inflationary periods because it values inventory at the most recent costs.
Correct Answer:
A
— FIFO
Learn More →
Q. Which method would provide a better matching of current costs with current revenues?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
-
D.
Specific Identification
Solution
LIFO provides a better matching of current costs with current revenues, as it uses the most recent costs for the cost of goods sold.
Correct Answer:
B
— LIFO
Learn More →
Showing 1 to 11 of 11 (1 Pages)
