The managers of constantine company receive

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Financial Accounting: The Impact on Decision Makers
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Chapter 5 / Exercise 3
Financial Accounting: The Impact on Decision Makers
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108.The managers of Constantine Company receive performance bonuses based on the netincome of the firm. Which inventory costing method are they likely to favor in periods ofdeclining prices?a.LIFOb.Average Costc.FIFOd.Physical inventory methodAns: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:Business Economic
109.In periods of inflation, phantom or paper profits may be reported as a result of using the
110.Selection of an inventory costing method by management does not usually depend on
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Financial Accounting: The Impact on Decision Makers
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Chapter 5 / Exercise 3
Financial Accounting: The Impact on Decision Makers
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Inventories111.In a period of rising prices, the costs allocated to ending inventory may be understated inthea.average-cost method.b.FIFO method.c.gross profit method.d.LIFO method.Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:Business Economic112.The accountant at Almira Company is figuring out the difference in income taxes thecompany will pay depending on the choice of either FIFO or LIFO as an inventory costingmethod. The tax rate is 30% and the FIFO method will result in income before taxes of$8,190. The LIFO method will result in income before taxes of $7,290. What is thedifference in tax that would be paid between the two methods?
113.The accountant at Cedric Company has determined that income before income taxesamounted to $7,000 using the FIFO costing assumption. If the income tax rate is 30% andthe amount of income taxes paid would be $315 greater if the LIFO assumption wereused, what would be the amount of income before taxes under the LIFO assumption?a.$5,950b.$7,000c.$7,315d.$8,050Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:Problem Solving, IMA: Quantitative MethodsSolution: $7,000 + ($315 .30) = $8,050

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