QUESTION: 1869

Under an inflationary environment with stable inventories, a firm may change to LIFO from FIFO due to which of the following reason(s)?

To allow earnings manipulation.
II. To improve the reported current ratio.
III. To reduce tax drain on cash.
IV. Show a more accurate representation of reported assets than FIFO.
I, II, III & IV
I & II
I & III
I, III & IV

Answer(s): C

Explanation:

Under LIFO, inventory is understated and hence, current ratio is understated under normal, inflationary conditions. At the same time, COGS is larger than under FIFO due to rising prices, reducing the taxable income and leading to lower taxes. Further, firms can manipulate earnings under LIFO by changing purchasing patterns at the end of an accounting period. This happens because the LIFO COGS is determined by the prices of the latest goods purchased.

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QUESTION: 1870

Which of the following information would not be filed with the SEC by a publicly company?

proxy statement
tax return
10K report
prospectus

Answer(s): B

Explanation:

Tax returns are filed with the IRS.

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QUESTION: 1871

The following data have been extracted from the financial statements of a firm for two years, 1991 and 1992:

1991 1992
Assets 9,947 9,682
Sales 11,035 10,377
Current liabilities 4,193 3,920
Non-current liabilities 3,827 3,476

The asset turnover and the equity turnover for 1992 equal ________.

0.98, 2.56
1.06, 4.93
2.11, 3.92
1.34, 6.38

Answer(s): B

Explanation:

Total asset turnover = net sales/average total assets
Total equity turnover = net sales/average equity
The total liabilities in 1991 = 4,193 + 3,827 = 8,020 and total liabilities in 1992 = 3,920 + 3,476 = 7,396.
Therefore, using the equation,
Total Assets = Total Liabilities + Total Equity,
the equity in 1991 was 9,947 - 8020 = 1,927 and in 1992, it was 9,682 - 7,396 = 2,286. Thus, the average equity for 1992 equals (1,927 + 2,286)/2 = 2,107 and average assets for 1992 equal (9,682 + 9,947)/2 = 9,815.
Therefore, asset turnover for 1992 = 10,377/9,815 = 1.06 and equity turnover = 10,377/2,107 = 4.93.

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QUESTION: 1872

The two primary qualities of accounting information to make it useful for decision-making are ________.

materiality and comparability
full disclosure and relevance
reliability and comparability
relevance and reliability

Answer(s): D

Explanation:

The financial information used to make decisions should be both reliable and relevant.

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QUESTION: 1870

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QUESTION: 1871

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QUESTION: 1872

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