"Financial Report":Inventory valuation method

来源: 正保会计网校编辑：小鞠橘桔 2020/11/13 09:06:48　字体：大小

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Questions 1:

Which of the following inventory valuation methods best matches the actual historical cost of the inventory items sold to their physical flow?

A 、LIFO

B 、FIFO

C、 Specific identification

Questions 2:

Selected financial information about a company is provided in the table:

Financial Report:Inventory valuation method

Which of the following conclusions is most accurate based on the foregoing information?

A 、The company faces a strong possibility of future write-downs.

B、The price of supplies increased significantly.

C、 Management anticipates a strong increase in product demand.

View answer resolution

【Answer to question 1】C

【analysis】

C is correct. Specific identification best matches the physical flow of the inventory items because it tracks the actual units that are sold.

A is incorrect. LIFO is based on cost flow assumptions but does not necessarily match the actual physical movement of the goods.

B is incorrect. FIFO is based on cost flow assumptions but does not necessarily match the actual physical movement of the goods.

【Answer to question 2】A

【analysis】

A is correct. The company experienced a large buildup of finished goods (38% increase) and a decline in both raw materials (–11.3%) and work in process (–4.0%). This scenario suggests a decline in demand for the company’s products and a strong likelihood of future write-downs. Supplies grew by less than 2.0%, but sales increased by less than 5.0%, so it is unlikely that the price of supplies increased significantly.

B is incorrect. Supplies have grown by less than 2.0%, but sales have increased by just under 5.0%, so it is unlikely that there has been a significant increase in the price of supplies.

C is incorrect. There is a large buildup of finished goods (38% increase) and a decline in both raw materials (–11.3%) and work in process (–4.0%). This suggests a decline in demand for the firm’s products.

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