Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Financial Statement Effects of Inventory Costing Methods

Financial Accounting

5. Inventory

Financial Statement Effects of Inventory Costing Methods

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following potentially limits the usefulness of the balance sheet when using the LIFO inventory costing method?

Inventory may be reported at outdated costs that do not reflect current market values.

LIFO always results in the highest reported inventory value during periods of rising prices.

Inventory is always reported at the most current replacement cost.

The balance sheet under LIFO always matches the physical flow of goods.

Previous problemNext problem

Verified step by step guidance

Understand the concept of LIFO (Last-In, First-Out) inventory costing method: LIFO assumes that the most recently purchased or produced items are sold first, leaving older inventory costs on the balance sheet.

Recognize the impact of LIFO on inventory valuation: During periods of rising prices, LIFO results in older inventory costs being reported on the balance sheet, which may not reflect current market values.

Evaluate the limitations of the balance sheet under LIFO: Since inventory is reported at outdated costs, it can potentially limit the usefulness of the balance sheet for stakeholders who rely on accurate and current financial information.

Analyze the incorrect statements: LIFO does not always result in the highest reported inventory value during periods of rising prices, nor does it report inventory at the most current replacement cost. Additionally, the balance sheet under LIFO does not necessarily match the physical flow of goods.

Conclude that the correct limitation is: 'Inventory may be reported at outdated costs that do not reflect current market values,' as this aligns with the nature of LIFO inventory costing during periods of price changes.