QUESTION: 2029

Under an inflationary, LIFO environment with stable inventories, which of the following is true compared to FIFO?

Working Capital Taxes Current Ratio

Higher Lower Lower
II. Lower Lower Lower
III. Higher Lower Lower
IV. Lower Higher Higher
II
I
IV
III

Answer(s): A

Explanation:

With rising prices and stable inventories, the COGS is higher under LIFO than under FIFO, thus lower net income and lower taxes. Ending inventory is valued lower under LIFO than under FIFO and hence, a lower current asset value and lower working capital and current ratio.

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QUESTION: 2030

Long-term obligations that are or will become callable by the creditor because of the debtor's violation of a provision of the debt agreement at the balance sheet date should be classified as

current liabilities unless the creditor has waived the right to demand repayment for more than 1 year from the balance sheet date.
current liabilities unless it is reasonably possible that the violation will be corrected within the grace period.
contingent liabilities until the violation is corrected.
none of these answers.
long-term liabilities

Answer(s): A

Explanation:

Current liabilities include obligations that must be liquidated within 1 year as well as obligations that are or will be callable by the creditor within 1 year because of a violation of a debt covenant. An exception exists, however, if the creditor has waived or subsequently lost the right to demand repayment for more than 1 year from the balance sheet date.

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QUESTION: 2031

Why do the corporation's directors declare stock dividends?

to increase the market value of the company's stock
to provide tangible evidence of management's confidence in the company's strong performance
to decrease the number of shares outstanding
none of these answers is correct

Answer(s): B

Explanation:

Declaring a stock dividend will increase the number of shares outstanding and thereby keep the per share price low enough to be an attractive investment. Stock dividends may also show the company management's confidence in the present and future performance of the company.

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QUESTION: 2032

Which of the following is the proper method of reporting the value of financial instruments on a firm's balance sheet?

All of these answers
Higher of cost or market
None of these answers
Cost
Fair market value

Answer(s): D

Explanation:

Company's are required by accounting regulations to record and report the value of financial instruments such as derivatives at cost.

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QUESTION: 2029

Explanation:

QUESTION: 2030

Explanation:

QUESTION: 2031

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QUESTION: 2032

Explanation: