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TRUEFinancial statements provide insight into a firm's financial health. Investors and potential investors seek-out both the balance sheet and the income statement to measure the fundamentals of a firm.AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 17-4Level of Learning 3: Application of principlesNickels - Chapter 17 #151Topic: Understanding Key Financial Statements46
152.(p. 469)Money received from tickets sold for the Rolling Stones concert is recorded as net income on the concert promoter's income statement. FALSEMoney received from the sale of tickets is considered revenuefor a concert promoter. Net income is calculated by subtracting the cost of goods sold, operating expenses, and taxes from the sales revenue.AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 17-4Level of Learning 3: Application of principlesNickels - Chapter 17 #152Topic: Revenue153.(p. 470)When valuing items in inventory for financial reporting purposes, generally accepted accounting principles (GAAP) requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first. FALSEGAAP permits businesses to select from a few different methods of inventory valuation, including FIFO (first-in, first-out) and LIFO (last-in, first-out).AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 17-4Level of Learning 3: Application of principlesNickels - Chapter 17 #153Topic: Spotlight on Small Business box154.(p. 470)The net income of a firm can change significantly depending upon the specific accounting procedures that are used for depreciation and inventory valuation. TRUEA firm's net income will vary according to the type of inventory valuation method the accountant employs when preparing financial statements.AACSB: Reflective ThinkingBlooms: SynthesisLearning Goal: 17-4Level of Learning 3: Application of principlesNickels - Chapter 17 #154Topic: Spotlight on Small Business box47
155.(p. 470)If prices of inventory are unchanged throughout the year, LIFO and FIFO inventory valuation methods will produce the same reported net income. TRUEIf the value of inventory items and/or the value of raw materials remain the same during the accounting period, the first items purchased and the last items purchased in inventory will have the same value. Both FIFO and LIFO accounting methods will produce the same figures.AACSB: Reflective ThinkingBlooms: ApplicationLearning Goal: 17-4Level of Learning 3: Application of principlesNickels - Chapter 17 #155Topic: Spotlight on Small Business box156.(p. 470)During a period of rising prices, the FIFO technique of inventory valuation will result in a lower net income figure than would the LIFO technique. FALSEDuring a period of rising prices, each time a firm purchases inventory, the cost of goods will increase. The last goods purchased will cost more than the first goods purchased. In this case, the FIFO technique (first-in, first-