10: A.2. Inventory and Inventory Tracking Methods

Question 1

Which one of the following actions would result in a decrease in income?

A. Accelerating purchases at the end of the year when using the last-in, first-out inventory method in times of rising prices.
B. Changing the number of last-in, first-out pools.
C. Changing from the first-in, first-out to the last-in, first-out inventory method when prices are decreasing.
D. Liquidating older last-in, first-out layers of inventory when prices have been increasing.

Answer 1

The Correct answer is A

Note: In any inventory tracking question, when he talks about the price,s he means the COGS prices not selling price

Question 2

Which one of the following statements reflects a disadvantage of the LIFO inventory valuation method?

A. Current costs are not matched to the current revenues.
B. It rarely approximates the physical flow of inventory.
C. It can negatively impact a company’s cash flow.
D. It often can cause acceleration of income tax impacts.

Answer 2

The correct answer is B