Which of the Following Would Be True If Inventory Costs

question 13

Multiple Choice

Which of the following would be true if inventory costs were increasing?

• A) LIFO would result in lower net income and lower ending inventory amounts than would FIFO
• B) FIFO would result in lower net income and higher ending inventory amounts than would LIFO
• C) LIFO would result in a lower net income amount but a higher ending inventory amount than would FIFO
• D) None of these would be true

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Definitions:

Inventory

The raw materials, work-in-process products, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

ROEs

Return on Equity, an indicator of financial efficiency determined by dividing a company's net income by its shareholders' equity, reflects how well management utilizes company assets to generate earnings.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity that it uses to finance its overall operations.

Current Assets

Current Assets are all assets of a company that are expected to be sold, used, or consumed within one year in the normal course of business.