Multiple Choice
If Chester Corporation's current market capitalization is \$500 million and its stock price falls by 10%, what would the new market capitalization be, assuming the number of shares outstanding remains unchanged?
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5. Inventory
Financial Statement Effects of Inventory Costing Methods
Multiple Choice
Which of the following statements regarding the financial statement effects of inventory costing methods is FALSE?
A
Under FIFO, cost of goods sold on the income statement reflects the most recent purchase costs.
B
Using the weighted-average method, cost of goods sold is based on the average cost of all units available for sale.
C
LIFO generally results in lower net income during periods of rising prices compared to FIFO.
D
Under FIFO, ending inventory on the balance sheet reflects the most recent purchase costs.
Verified step by step guidance1
Understand the inventory costing methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted-Average. Each method affects the cost of goods sold (COGS) and ending inventory differently.
Analyze the statement about FIFO: Under FIFO, the oldest inventory costs are used to calculate COGS, while the most recent purchase costs are used to value ending inventory on the balance sheet. This statement is true.
Evaluate the statement about the weighted-average method: Using this method, the average cost of all units available for sale is calculated and applied to both COGS and ending inventory. This statement is true.
Examine the statement about LIFO: During periods of rising prices, LIFO uses the most recent (higher) costs for COGS, which typically results in lower net income compared to FIFO. This statement is true.
Review the statement about FIFO and COGS: Under FIFO, COGS reflects the oldest purchase costs, not the most recent purchase costs. This statement is false, making it the correct answer to the question.
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