Inventory Valuation Methods Quiz

Which method assumes that the oldest inventory items are sold first?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

Under which inventory method would the cost of goods sold (COGS) be highest during a period of rising prices?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

Which method would result in a higher ending inventory value during deflation?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

If a company uses FIFO, what effect does this have on net income during inflation?

• Increases net income

• Decreases net income

• No effect on net income

• Depends on other factors

Under LIFO, which inventory layer is used to calculate the cost of goods sold?

• The most recent purchases

• The oldest purchases

• The average cost of all inventory

• The specific identification of items sold

Which of the following is true about the FIFO method in terms of tax implications during a period of rising prices?

• FIFO generally results in higher taxable income.

• FIFO generally results in lower taxable income.

• FIFO has no impact on taxable income.

• FIFO results in tax savings in all conditions.

When using the LIFO method, which of the following financial statements will be most affected during inflation?

• Balance Sheet

• Statement of Cash Flows

• Income Statement

• Statement of Changes in Equity

Which method is likely to show the lowest cost of goods sold during a period of high inflation?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

In an environment of decreasing prices, which method will likely show the highest cost of goods sold?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

If a company switches from FIFO to LIFO, what is the likely impact on the cost of goods sold if prices are rising?

• Increase in COGS

• Decrease in COGS

• No change in COGS

• Increase in ending inventory