When Comparing the FIFO and LIFO Inventory Methods

question 38

Multiple Choice

When comparing the FIFO and LIFO inventory methods:

• A)LIFO reports inventory at net realizable value.
• B)LIFO reports the most up-to-date inventory cost on the balance sheet.
• C)FIFO results in the most realistic net income figure.
• D)FIFO matches old inventory costs against revenue.

Comprehend the journal entry recording for bond reacquisition and its impact on financial statements.

Identify and apply the correct methods of amortization for bond discounts or premiums.

Distinguish between the book value and market value methods of accounting for convertible bonds and their impact on financial statements.

Recognize the significance and accounting treatment of the issuance of bonds with detachable stock warrants.

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Definitions:

Face Value

This is the nominal or dollar value printed on a financial instrument, such as a bond or stock certificate, representing its value at issue.

Standard Deviation

A statistic that measures the dispersion or variability of a dataset or investment returns relative to its mean.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase an asset at a specified price within a certain timeframe.

Strike Price

This is the fixed price at which the owner of an option can purchase (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.