QUESTION: 2085

In periods of rising prices, which inventory costing method results in the smallest income tax expense?

Average cost
Perpetual
FIFO
LIFO

Answer(s): D

Explanation:

LIFO assigns the largest dollar value amounts to COGS when purchase prices are rising, thus resulting in lower net income and lower income taxes.

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Patterson Company has the following information of one of its vehicles purchased on January 1, 1992:

Vehicle cost $50,000
Useful life, years, estimated 5
Useful life, miles, estimated 100,000
Salvage value, estimated $10,000

Actual miles driven:

1992 30,000
1993 10,000
1994 15,000
1995 25,000
1996 12,000

No estimates were changed during the life of the asset. The 1994 depreciation expense using the sum-of-

years'-digits (SYD) method was ________.

$13,333
$8,000
$10,667
$10,000
$6,000

Answer(s): B

Explanation:

SYD depreciation is calculated on a constant depreciable base equal to $40,000 ($50,000 original cost -10,000 salvage value), multiplied by the SYD fraction. The denominator is the sum of the digits of the total years of the expected useful life (1+2+3+4+5=15). The SYD fraction's numerator equals the remaining years. For 1994, the fraction is 3/15, and depreciation expense is $8,000 ($40,000 X 3/15).

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QUESTION: 2087

Under the accrual basis of accounting, which of the following statements is true?

Reported net income provides a measure of operating performance.
II. Revenue is recognized when cash is received, and expenses are recognized when payment is made.
III. Cash inflows are recognized when they are received, and cash outflows are recognized when they are made.
I only
I, II and III
III only
I and III

Answer(s): D

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QUESTION: 2088

Valuation of PP&E and natural resources emphasizes all of the following accounting objectives except ________.

accounting for monies invested in assets
historical cost
conservatism principle
reality

Answer(s): D

Explanation:

The financials portray historical information; they do not paint a picture of today.

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Free CFA-Level-I Exam Braindumps (page: 522)

QUESTION: 2085

Explanation:

QUESTION: 2086

Explanation:

QUESTION: 2087

QUESTION: 2088

Explanation: