Part A - FIFO vs LIFO In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listing was developed. You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item. Any combination of yes, no answers is possible in each situation. With the exception of #9, assume no LIFO liquidations. FIFO YES Rart R LIFO NO 0 Usually matches the actual physical flow of goods 1 If used for tax purposes, it must be used for financial reporting purposes. 2 Improves cash flow in periods of rising prices. 3 Tends not to include the effects of rapidly rising (or falling) prices on the income statement 4 Income figure is more “real” in that it doesn't contain "paper profits." 5 A change to this method must be justified in the annual report disclosure notes. 6 Perpetual inventory results may be different from periodic inventory results 7 Is acceptable to the IRS (i.e., for income tax purposes). 8 Emphasizes the income statement in that it matches the recent costs with revenues 9 Possibility of liquidating the base may be a significant negative aspect. 10 Emphasizes the balance sheet in that the more recent costs are contained in the inventory account
Part A - FIFO vs LIFO In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listing was developed. You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item. Any combination of yes, no answers is possible in each situation. With the exception of #9, assume no LIFO liquidations. FIFO YES Rart R LIFO NO 0 Usually matches the actual physical flow of goods 1 If used for tax purposes, it must be used for financial reporting purposes. 2 Improves cash flow in periods of rising prices. 3 Tends not to include the effects of rapidly rising (or falling) prices on the income statement 4 Income figure is more “real” in that it doesn't contain "paper profits." 5 A change to this method must be justified in the annual report disclosure notes. 6 Perpetual inventory results may be different from periodic inventory results 7 Is acceptable to the IRS (i.e., for income tax purposes). 8 Emphasizes the income statement in that it matches the recent costs with revenues 9 Possibility of liquidating the base may be a significant negative aspect. 10 Emphasizes the balance sheet in that the more recent costs are contained in the inventory account
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Part A - FIFO vs LIFO
In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listing was
developed. You are to complete the tabulation with an answer of "YES" or "NO" as
demonstrated by the first item. Any combination of yes, no answers is possible in each situation.
With the exception of #9, assume no LIFO liquidations.
FIFO
YES
Rart R
LIFO
NO 0 Usually matches the actual physical flow of goods
1
If used for tax purposes, it must be used for financial
reporting purposes.
2
Improves cash flow in periods of rising prices.
3
Tends not to include the effects of rapidly rising
(or falling) prices on the income statement
4 Income figure is more “real” in that it doesn't contain
"paper profits."
5 A change to this method must be justified
in the annual report disclosure notes.
6 Perpetual inventory results may be different from periodic
inventory results
7
Is acceptable to the IRS (i.e., for income tax purposes).
8
Emphasizes the income statement in that it matches the
recent costs with revenues
9 Possibility of liquidating the base may be a significant
negative aspect.
10 Emphasizes the balance sheet in that the more recent costs
are contained in the inventory account
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