Practice%20Questions_Exam%20II

Practice%20Questions_Exam%20II - Question I - FIFO vs....

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Question I — FIFO vs. LIFO. In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listing was developed. You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item. Any combination of yes-no answers is possible in each situation. FIFO LIFO 0. Usually matches the actual physical flow of goods. Yes __ No ___ 1. Emphasizes the income statement in that it matches the more recent costs with revenue. ______ ______ 2. Defers tax payments in times of rising prices. ______ ______ 3. Possibility of liquidating the base may be a significant negative aspect. ______ ______ 4. Will probably not be adopted if prices are expected to decline. ______ ______ 5. Emphasizes the balance sheet in that the more recent costs are contained in the inventory account. ______ ______ 6. Can use price indexes to cost layers. ______ ______ 7. Switching to this method could cause problems in the equity markets, with loan covenants, etc. ______ ______ 8. Income figure more accurately reflects cash available for dividends, investments, etc. ______ ______ 9. Tends to smooth income in periods of fluctuating prices. ______ ______ 10. Income figure is more "real" in that it doesn't contain "paper profits." ______ ______ 11. A change to this method must be justified (i.e., to the auditor) other than solely on the basis of the tax effect. ______ ______
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12. Perpetual inventory results may be different from periodic inventory results. ______ ______ 13. Is acceptable to the IRS (i.e., for income tax purposes). ______ ______ 14. Gives lower profits when prices rise. ______ ______ 15. In a period of rising prices has an adverse effect on assets, working capital, and stockholders' equity. ______ ______ 16. Quick inventory turnover may have somewhat of a mitigating effect on some of the method's claimed disadvantages. ______ ______ 17. Improves cash flow in periods of rising prices. ______ ______ 18. If used for tax purposes, it must be used for financial reporting
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Practice%20Questions_Exam%20II - Question I - FIFO vs....

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