FUNDAMENTALS OF FINANCIAL ACCOUNTING
6th Edition
ISBN: 9781260664386
Author: PHILLIPS, LIBB
Publisher: MCG
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Textbook Question
Chapter 13, Problem 14ME
Describing the Effect of Accounting Decisions on Ratios
For each of the following three accounting choices, indicate the decision that will yield (a) a higher net profit margin and (b) a lower
- 1. Straight-line versus accelerated
depreciation (in the first year of the asset’s life). - 2. FIFO versus LIFO (in periods of constantly rising costs and rising inventory levels).
- 3. Straight-line depreciation with a four-year useful life versus a seven-year useful life (no residual value).
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Discuss how, in choosing the accounting methods below, the following ratios can be affected – rate of return on assets, quick ratio, profit margin, asset turnover:
(a) a change in accounting method for depreciation from straight line to reducing balance.
(b)revaluation of a non-current asset upwards at the beginning of the current year.
(c) providing for an expected loss through obsolescence of certain items of merchandise inventory.
When inventory is adjusted down, what is the impact on the balance sheet?
a. The value of the asset, Merchandise Inventory, is restated at a more conservative number.
b. The value of the asset, Merchandise inventory, is increased to reflect a more optimistic outlook.
c. The value of the liability, Selling Expense, would be decreased to reflect a more conservative outlook.
d. The value of the liability, Operating Expenses, would be increased to reflect the loss.
You are an accountant for ACME Corporation working on inventory valuation. What would prevent you from using LCNRV to adjust the value of your inventory?
a. If ACME uses NIFO.
b. If ACME uses LIFO to cost inventory.
c. If ACME uses FIFO to cost inventory.
d. If the Cost of Goods Sold exceeds last quarter’s COGS.
Which of the following is true regarding LIFO and FIFO? A) In a period of decreasing costs,
LIFO results in lower total assets than FIFO. B) In a period of decreasing costs, LIFO results in
lower net income than FIFO. C) In a period of rising costs, LIFO results in lower net income
than FIFO. D) The amount reported for COGS is based on net realizable value of inventory if
LIFO is used. E) None of the Above
Chapter 13 Solutions
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Ch. 13 - What is the general goal of trend analysis?Ch. 13 - Prob. 2QCh. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What benchmarks are commonly used for interpreting...Ch. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Slow Cellars current ratio increased from 1.2 to...Ch. 13 - From last year to this year, Colossal Companys...Ch. 13 - From last year to this year, Berry Bam reported...Ch. 13 - Explain whether the following situations, taken...
Ch. 13 - What are the two essential characteristics of...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - 1. Which of the following ratios is not used to...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Analysts use ratios to a. Compare different...Ch. 13 - Which of the following ratios incorporates stock...Ch. 13 - Prob. 6MCCh. 13 - Prob. 7MCCh. 13 - A bank is least likely to use which of the...Ch. 13 - Prob. 9MCCh. 13 - (Supplement 13A) Which of the following items is...Ch. 13 - Calculations for Horizontal Analyses Using the...Ch. 13 - Calculations for Vertical Analyses Refer to M13-1....Ch. 13 - Interpreting Horizontal Analyses Refer to the...Ch. 13 - Interpreting Vertical Analyses Refer to the...Ch. 13 - Prob. 5MECh. 13 - Prob. 6MECh. 13 - Prob. 7MECh. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Inferring Financial Information Using the Current...Ch. 13 - Prob. 10MECh. 13 - Identifying Relevant Ratios Identify the ratio...Ch. 13 - Prob. 12MECh. 13 - Analyzing the Impact of Accounting Alternatives...Ch. 13 - Describing the Effect of Accounting Decisions on...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational Formula...Ch. 13 - Computing and Interpreting Selected Liquidity...Ch. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - Prob. 6CPCh. 13 - Prob. 7CPCh. 13 - Prob. 1PACh. 13 - Prob. 2PACh. 13 - Prob. 3PACh. 13 - Prob. 4PACh. 13 - Prob. 5PACh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PACh. 13 - Prob. 1PBCh. 13 - Prob. 2PBCh. 13 - Prob. 3PBCh. 13 - Prob. 4PBCh. 13 - Prob. 5PBCh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PBCh. 13 - Prob. 1SDCCh. 13 - Prob. 2SDCCh. 13 - Prob. 5SDCCh. 13 - Prob. 6SDCCh. 13 - Prob. 7SDCCh. 13 - Prob. 1CC
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- When a company determines that the net realizable value of its ending inventory is lower than its cost, what would be the effect(s) of the adjustment to write down inventory to net realizable value? a. Decrease total assets. b. Decrease net income. c. Decrease retained earnings. d. All of these answer choices are correct.arrow_forwardFor each of the following situations, indicate whether FIFO, LIFO, or weighted average applies: a. In a period of falling prices, net income would be highest. b. In a period of falling prices, the unit cost of goods would be the same for ending inventory and cost of goods sold. c. In a period of rising prices, net income would be highest. d. In a period of rising prices, cost of goods sold would be highest. e. In a period of rising prices, ending inventory would be highest.arrow_forwardWhich of the following requires an adjustment to the opening balance of retained earnings in the earliest period of the comparative financial statements presented? A change in the estimated useful life of machinery. A change in the expected residual value of a property. A change from straight line to declining balance depreciation. A change from first-in, first out (FIFO) to weighted average inventory cost flow assumptionarrow_forward
- Please do not give image format and solve all requiredarrow_forwardFirst solve your NI = Sales - COGS - Operating expenses - depreciation- interest- taxes Then subtract current year - prior year for AR, inventory, AP and accruals At last- NI + current year depreciation - changes in AR - changes in inventory + changes in AP + Changes in Accruals Don't do the subtraction for depreciation, you're using the current year for that onearrow_forwardUnder the LIFO cost flow assumption during a period ofinflation, which of the following is false? A. Cost of goods sold will be lower than under FIFO B. Gross margin will be lower than under FIFO C. Income tax expense will be lower than under FIFO D. Ending inventory will be lower than under FIFOarrow_forward
- In a period of rising prices,a. cost of goods sold under LIFO will be less than under FIFO.b. gross profit under FIFO will be higher than under LIFO.c. LIFO inventory will be greater than FIFO inventory.d. net income under LIFO will be higher than under FIFO.arrow_forwardWhich of the following statements Is/are true? Multiple Cholce In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method. All of the other answer choices are true. In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO. In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.arrow_forwardWhich of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.arrow_forward
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