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

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Multiple Choice

Financial risk refers to which one of the following?

The likelihood that reported net income will fluctuate due to changes in inventory costing methods.

The chance that a company will misstate its inventory due to errors in physical counts.

The risk that inventory will become obsolete or unsellable.

The possibility that a company will be unable to meet its financial obligations due to the use of debt financing.

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Verified step by step guidance

Understand the concept of financial risk: Financial risk refers to the possibility that a company may face difficulties in meeting its financial obligations, particularly due to the use of debt financing.

Analyze the options provided in the problem: Each option describes a different type of risk or issue, but only one aligns with the definition of financial risk.

Option 1: Fluctuations in reported net income due to changes in inventory costing methods are related to accounting policies and practices, not financial risk.

Option 2: Errors in physical counts leading to misstatements in inventory are operational risks, not financial risk.

Option 3: The risk of inventory becoming obsolete or unsellable is a business or inventory risk, not financial risk. The correct answer is Option 4, which directly addresses the possibility of a company being unable to meet its financial obligations due to debt financing.