"Financial Report":LIFO

来源: 正保会计网校编辑：小鞠橘桔 2020/12/04 13:50:33　字体：大小

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Questions 1:

One reason that the last-in, first-out (LIFO) inventory valuation method is widely used in the United States is most likely that it:

A、 results in higher reported gross profit.

B、 is available under both US GAAP and International Financial Reporting Standards.

C、 results in higher operating cash flows.

Questions 2:

Depreciation expense under which of the following methods is least likely affected by the estimate of the useful life of the asset?

A 、Double declining balance method

B 、Straight-line method

C、 Units-of-production method

View answer resolution

【Answer to question 1】C

【analysis】

C is correct. LIFO is widely used in the United States because it results in a higher cost of goods sold, and thus lower taxable profits, under the assumption of historically rising prices. Income taxes are correspondingly lower, and thus operating cash flows are higher.

A is incorrect. Under normal conditions (rising prices), the LIFO method results in a higher reported cost of goods sold and a lower reported gross profit.

B is incorrect. IFRS does not allow LIFO as an inventory valuation method

【Answer to question 2】C

【analysis】

C is correct. The units-of-production method is independent of the useful life estimate.

A is incorrect. The double declining balance method is linked to useful life estimate because the “double” refers to doubling the rate determined under the straight-line method which depends on the useful life.

B is incorrect. The straight-line method is linked to useful life estimate.

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