Analysis of Inventories

Question 1

Net realizable value (NRV)

Answer 1

How much they expect to sell inventory for (est selling price - cost of completion - seeling cost).

If NRV < cost -> loss on IS

Question 2

FIFO/LIFO profitability

Answer 2

LIFO produces higher COGS in the income statement and will result in lower earnings

Question 3

FIFO/LIFO liquidity

Answer 3

LIFO results in a lower inventory value on the balance sheet. Because inventory (a current asset) is lower under LIFO, the current ratio, a popular measure of liquidity, is also lower under LIFO than under FIFO.

Quick ratio unaffected

Question 4

FIFO/LIFO ACTIVITY

Answer 4

LIFO > FIFO

Question 5

FIFO/LIFO solvency

Answer 5

LIFIO>FIFO

Question 6

LIFO Liquidation

Answer 6

Occurs when goods sold exceeds goods replaced
- oler inv costs used -> temp higher earnings