CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which statement(s) is (are) FALSE?

I. Under the LIFO method of inventory valuation, the ending merchandise inventory would be valued at the purchase price of the most recent purchases.

II. During extended periods of rising prices, the FIFO method of inventory valuation will yield a higher cost of goods sold and a lower ending merchandise inventory than the LIFO method of inventory valuation.

III. The accounting principle of consistency prohibits any changes in the method of inventory valuation.

IV. JIT means "just in time"; it is an inventory method that purchases the raw materials for production in smaller quantities after orders have been taken for the manufactured products.
A. I, II and III
B. I, II and IV
C. II, III and IV
Explanation: I. LIFO means "last-in, first-out" -the cost of the last items purchased are charged to the most recent sales. The merchandise inventory at the end of the year is considered to be from the oldest purchases.

II. The FIFO method will result in a lower cost of goods sold and a higher ending merchandise inventory (valued at first-in costs).

III. While consistency should be maintained, legitimate changes are allowed. However, the nature, justification, and effect of the change on net income must be disclosed (full-disclosure principle).

IV. JIT inventory systems require reliable suppliers and efficient handling and shipping of materials.

User Contributed Comments 1

User Comment
Mikehuynh I. Under FIFO, ending merchandise inventory would be valued at the purchase price of the most recent purchases

II would be correct by replacing FIFO with LIFO
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