Question

Which of the following statements on inventory turnover is incorrect?

a. Inventory turnover is equal to the cost of goods sold divided by average inventory.

b. When costs are rising, inventory turnover under LIFO will be lower than under FIFO.

c. When costs are decreasing, inventory turnover under LIFO will be lower than under FIFO.

d. When costs are rising, inventory turnover under LIFO will be higher than under FIFO.

Which of the following statements is incorrect?

a.Inventory write-offs decrease current assets.

b.Inventory write-offs decrease gross profit.

c.Inventory write-offs decrease operating income.

d.Inventory write-offs increase selling, general, and administrative costs.

Which of the following statements is correct?

	a.	Income tax expenses are higher under LIFO then under FIFO when costs are rising.
	b.	Operating income is higher under FIFO than under LIFO when costs are decreasing.
	c.	Inventory value is higher under LIFO then under FIFO when costs are rising.
	d.	Gross profit is lower under FIFO than under LIFO when costs are decreasing.

Which of the following statement is correct?

	a.	Inventory value under the average cost method is always lower than the value under FIFO.
	b.	FIFO is the “balance-sheet” approach because inventory values represent more current prices.
	c.	LIFO is the “income-statement” approach because the cost of goods sold is higher, and therefore, more conservative.
	d.	Inventory value under the average cost method is always higher than the value under FIFO.

Which of the following statements is correct?

	a.	LIFO purchases are always equal to FIFO purchases.
	b.	LIFO purchases are lower than FIFO purchases when costs are rising.
	c.	LIFO purchases are lower than FIFO purchases when costs are decreasing.
	d.	LIFO purchases are higher than FIFO purchases when costs are rising.

Which of the following statements is correct?

	a.	A firm can choose LIFO for tax reporting purposes and FIFO for financial reporting purposes.
	b.	A firm can choose FIFO for tax purposes and LIFO for financial reporting purposes.
	c.	The US is one of the only countries in the world that prohibits the use of LIFO.
	d.	When a firm chooses a cost flow assumption, it must apply it to all inventory types.

Which of the following statements about inventory turnover is correct?

	a.	When a firm writes-down inventory, Inventory turnover remains unchanged.
	b.	When a firm writes-down inventory, Inventory turnover decreases.
	c.	When a firm writes-down inventory, Inventory turnover increases.
	d.	The effect of inventory write-downs on inventory turnover depends on when whether the firm uses FIFO, LIFO, or average cost.

Answer 1

1.
Answer is b. When costs are rising, inventory turnover under LIFO will be lower than under FIFO.
As when costs are rising, Inventory turnover will be higher in LIFO

2.
Answer is d.Inventory write-offs increase selling, general, and administrative costs.
Since it is adjusted in cost of goods sold

3.
Answer is

d.	Gross profit is lower under FIFO than under LIFO when costs are decreasing.

Since Cost of goods sold will be higher in FIFO

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