1、In case of a decline in LIFO reserve,to obtain a better analysis an analyst should:
A)adjust the income statement,only if such a decline is due to LIFO liquidation.
B)not make any adjustments.
C)adjust the income statement,regardless of the reasons for the decline.
2、Given the following data:
Beginning LIFO Reserve$2,300
Cost of Goods Sold(COGS)using LIFO$6,100
COGS using FIFO of$4,300
What is the Ending LIFO reserve?
3、Earlier this year,Barracuda Company issued 5,000 employee stock options.Recently,2,000 options were exercised at a price of$10 per share.To avoid dilution,Barracuda purchased 2,000 shares at an average price of$12 per share.Barracuda reported both transactions as financing activities in its cash flow statement.For analytical purposes,what adjustment is necessary to better reflect the substance of the stock repurchase?
Operating cash flow Financing cash flow
A.Decrease$4,000 No adjustment
B.No adjustment Increase$4,000
4、Using the lower of cost or market principle under U.S.GAAP,if the market value of inventory falls below its historical cost,the minimum value at which the inventory can be reported in the financial statements is the:
A.net realizable value.
B.market price minus selling costs minus normal profit margin.
C.net realizable value minus selling costs.
5、Inventory,cost of sales,and gross profit can be different under periodic and perpetual inventory systems if a firm uses which inventory cost method?
A.FIFO or weighted average cost,but not LIFO.
B.LIFO or weighted average cost,but not FIFO.
C.LIFO or FIFO,but not weighted average cost.
A decline in LIFO reserve is due to either falling prices or LIFO liquidations.In the case of LIFO liquidation,the income statement does not reflect the current costs and should be adjusted.In the case of falling prices,the LIFO income statement amounts are current and do not need adjustment.
Ending LIFO Reserve=(LIFO COGS?FIFO COGS)+Beginning LIFO Reserve=(6,100?4,300)+2,300=$4,100
Barracuda reported a$4,000 net outflow from financing activities[2,000 options*($12 average market price-$10 exercise price)].However,since the options are a form of compensation,the$4,000 outflow should be reclassified as an operating activity for analytical purposes.This is accomplished by increasing financing cash flow$4,000 and decreasing operating cash flow$4,000.
When inventory is written down to market,the replacement cost of the inventory is its market value,but the market value must fall between net realizable value(NRV)and NRV less normal profit margin.NRV is the market price of the inventory less selling costs.Therefore the minimum value is the market price minus selling costs minus normal profit margin.
The LIFO and weighted average cost methods can provide different values for inventory,cost of sales,and gross profit depending on whether the firm uses a periodic or perpetual inventory system.FIFO produces the same values from either a periodic or perpetual inventory system.