Multiple Choice Questions
30.At a time of declining prices, which cost flow assumption will result in the highest ending inventory?
A. FIFO
B. LIFO
C. Weighted average
D. Either A or C
31.When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)?
A. weighted average.
B. FIFO.
C. LIFO.
D. None of these; inventory methods cannot affect cash flows.
32.Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?
A. Weighted average.
B. Specific identification.
C. FIFO.
D. LIFO.
33.Benson Company purchased two identical inventory items. The item purchased first cost $14.00, and the item purchased second cost $15.00. Benson sold one of the items for $24.00. Which of the following statements is true?
A. Ending inventory will be lower if Benson uses weighted average than if FIFO were used.
B. Cost of goods sold will be higher if Benson uses FIFO than if weighted average were used.
C. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used.
D. Gross margin will be higher if Benson uses LIFO than it would be if FIFO were used.
34.When prices are falling:
A. LIFO will result in lower income and a lower inventory valuation than will FIFO.
B. LIFO will result in lower income and a higher inventory valuation than will FIFO.
C. LIFO will result in higher income and a lower inventory valuation than will FIFO.
D. LIFO will result in higher income and a higher inventory valuation than will FIFO.
35.If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?
A. FIFO
B. LIFO
C. NIFO
D. Weighted Average
36.Bowden Company paid cash to purchase two identical inventory items. The first purchase cost $16.00 cash and the second cost $18.00 cash. Bowden sold one inventory item for $28.00 cash. Based on this information alone, without considering the effect of income tax,:
A. cash flow from operating activities is $11.00 assuming a weighted average cost flow.
B. cash flow from operating activities is $12.00 assuming a FIFO cost flow.
C. cash flow from operating activities is $10.00 assuming a LIFO cost flow.
D. the amount of cash flow from operating activities is not affected by the cost flow method.
37.When the cost of inventory is rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?
A. FIFO
B. Weighted Average.
C. All methods will produce the same amount of cost of goods sold.
D. LIFO
38.In an inflationary environment,
A. a company’s net income will be higher if it uses FIFO than if it uses LIFO.
B. a company’s cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C. a company’s net income will be the same regardless of whether LIFO or FIFO is used.
D. a company’s assets will be lower if it uses FIFO as opposed to LIFO cost flow.
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