Reference no: EM132825161

Problem 1: What happens when prices are falling?

A.) LIFO will result in lower net income and a lower inventory valuation than will FIFO

B.) LIFO will result in lower net income and a higher inventory valuation than will FIFO

C.) LIFO will result in higher net income and a higher inventory valuation than will FIFO

D.) LIFO will result in higher net income and a lower inventory valuation than will FIFO

Problem 2: If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

A.) LIFO

B.) FIFO

C.) Weighted average

D.) LIFO, FIFO, and the weighted-average inventory cost flow methods will all produce equal amounts of cost of goods sold

Problem 3: Baker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20 cash. Baker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income taxes, which of the following statements is correct?

A.) Cash flow from operating activities is $11.00 assuming the weighted-average inventory cost flow method is used.

B.) Cash flow from operating activities is $12.00 assuming the FIFO inventory cost flow method is used.

C.) Cash flow from operating activities is $10.00 assuming the LIFO inventory cost flow method is used

D.) The amount of cash flow from operating activities is not affected by the inventory cost flow method chosen.