GM506 diss 2

In an inflationary economy, the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory. True or False

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.

Th 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).

Which of the following is not a disadvantage of using the FIFO cost flow assumption? includes all the holding gains in income during periods of rising prices does not match current costs against current revenues provides a relevant ending inventory value creates the highest outflow for income taxes during periods of rising prices

Which of the following performance measures will increase if inventory decreases and all else remains the same?     Return on Investment Residual Income A) Yes Yes B) No Yes C) Yes No D) No No     Multiple Choice   Choice A   Choice B   Choice C   Choice D

2. Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes. B. Which inventory method would best meet Shepherd's goal? Enter answer here. C. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need? Enter answer here.

Which of the following performance measures will increase if inventory decreases and all else remains the same? Return on Residual Investment Income A) B) Yes Yes No Yes Yes No D) No No Multiple Choice Choice C Choice D Choice A

Which inventory method will result in lower net income in a period of rising prices? Which inventory method will result in lower net income in a period of falling prices?

If costs are rising, which of the following will be true?a. The cost of goods sold will be greater if LIFO is usedrather than weighted average.b. The cost of ending inventory will be greater if FIFO isused rather than LIFO.c. The gross profit will be greater if FIFO is used ratherthan LIFO.d. All of the above are true

Explain the purpose of the inventory turnover ratio? Is it possible for a firm to have a high current ratio and still have difficulty paying its current bills? Why or why not?

Steadily increasing cost of goods sold as a percentage of net revenues is an indication ofa. decreasing earnings quality.b. increasing earnings quality.c. financial statement fraud.d. increasing production efficiencies.

13.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 lowest

10. In a period of rising prices, the FIFO method of costing inventory results in income tax savings for companies.  Select one: True False   11. When prices increase, FIFO reports higher gross profit and net incomethan LIFO. Select one: True False 12. A debit memo represents a decrease to accounts payable and therefore results in less money owed to the seller. Select one: True False

Which of the following are possible reasons for a decrease in the accounts payable turnover ratio? O Quicker inventory turnover. Increased labor costs. O Quicker accounts receivable turnover. Preparation for a new product launch.

Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling prices

Which of the following change in regulations is most likely to improve internal market efficiency and thereby overall market efficiency?   Reducing margin requirements on short selling. Raising margin requirements on short selling. Raising margin requirements on margin purchases. Reducing trading hours. Increasing margin interest rates.

CVP analysis makes all of the following assumptions except     a change in volume is the only factor that affects costs.     revenues are linear throughout the relevant range.     the mix of products will not change.     inventory levels will increase.

a. Why is a high inventory turnover considered to be a positive indicator?b. Is it possible to have a high inventory turnover and a high number of days’ sales in inventory? Why?