Exercise 5-1A: Effect of inventory cost flow assumption on financial statements

Question

Exercise 5-1A: Effect of inventory cost flow assumption on financial statements Required: For each of the following situations, fill in the blank with FIFO, LIFO, or weighted average: A. Would produce the highest amount of net income in an inflationary environment. B. Would produce the highest amount of assets in an inflationary environment. C. Would produce the lowest amount of net income in a deflationary environment. D. Would produce the same unit cost for assets and cost of goods sold in an inflationary environment. E. Would produce the lowest amount of net income in an inflationary environment. F. Would produce an asset value that was the same regardless of whether the environment was inflationary or deflationary. G. Would produce the lowest amount of assets in an inflationary environment. H. Would produce the highest amount of assets in a deflationary environment.

Explanation / Answer

A. FIFO

B. FIFO

C FIFO

D WEIGHTED AVERAGE

E LIFO

F WIEGHTED AVERAGE

G FIFO

H LIFO

tHANKS

(CHIRAG NAGPAL)

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