QUESTION: 1545

A firm follows LIFO accounting. Its inventory accounts for a period showed the following sequential accounts:

Beginning inventory of 50 units, purchased at $5
50 units purchased at $10
35 units purchased at $9
25 units sold at $15
70 units sold at $12
Tax rate = 40%
Beginning LIFO reserve = $300

Then, the net income of the firm using LIFO is ________.

$285
$210
$198
$350

Answer(s): B

Explanation:

The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Under LIFO, the goods purchased last are assumed to have been sold first. Therefore, 35 of the sold units have a cost of $9 each, 50 units have a cost of $10 each and the remaining 10 have a cost of $5 each. Therefore, LIFO COGS = 35*9 + 50*10 + 10*5 = $865. Therefore, assuming no other costs, the pre-tax income equals 1,215 - 865 = $350 and the post tax income equals 350*(1-40%) = $210.

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QUESTION: 1546

Which of the following is considered a characteristic of a liability?

A liability represents a claim against a company's present and future assets and resources.
A liability requires the rendering of future services.
All of these answers.
A liability requires the payment of money.
A liability represents a claim that is usually senior to the holders of equity securities.

Answer(s): C

Explanation:

By definition, a liability is a financial obligation that requires the payment of money, or the rendering of future services. It is a claim against the business that must be satisfied in one way or another. Lastly, liabilities are claims that have a higher level of priority than equity as it relates to the distribution of income, or assets.

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QUESTION: 1547

The formula for calculating profit margin is

total sales divided by total expenses
net sales minus total expenses divided by net income
net income divided by net sales
none of these answers is correct

Answer(s): C

Explanation:

Profit margin, also called return on net sales, is calculated by dividing net income by net sales. This ratio measures the average portion of each dollar of revenue that ends up as profit.

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QUESTION: 1548

"Deferral" refers to:

a postponement of recognition of income until the earnings process is actually completed.
none of these answers.
recognition of an asset for all payments made for goods and services not yet delivered.
postponement of tax payments through the use of tax credits.

Answer(s): A

Explanation:

"Deferral" is the accounting process of recognizing a liability when payments are made in advance of the earnings process. Over time, as the earnings process proceeds, income is recognized and liabilities are decreased.

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QUESTION: 1545

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QUESTION: 1546

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QUESTION: 1547

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QUESTION: 1548

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