How many of the following statements are false: I. For purposes of inventory analysis, FIFO is preferred over LIFO II FIFO cogs = Lifo COGS - change in lifo reserve III In periods of declining prices, LIFO debt-to-equity ratios are higher than FIFO debt to equity ratios IV If LIFO cogs sold is overstated by 200k then ending inventory is understated by 200k a) one b) two c) three d) four when you pick you answers, please describe your choices.


Why is I false?

Ok III is false, the other are correct.

Guys, the question ask for false! I think IV is definitely true. cuz cogs and inventory are inversely related.

B) 1) Fifo, higher inventory, usually overstates inventory therefore lifo is preferred (in periods of rising prices and inventory levels) 2) true 3) lifo has lower ni, lower taxes >>> higher Equity. debt to equity reduces with higher denominator 4) true.

i dotn understand why I is false, thought FIFO is better for inventory? III is false, not sure about IV What is the answer?

only III looks false.

I think only iii is false!!!

yes, I reversed that…for (1) FIFO is better for inventory regardless of direction of prices.

yeap I:Inventory is a BS item, FIFO is preferred on analysis of BS II is true III is false, in declining prices COGS LIFONIF, E under LIFO> Equity under FIFO, D/E under LIFO is lower IV correct: if the COGS are overstated, than the inventory is understated by the same amount

I think its 2. I think I, and II are true. III is false IV is false because ending inventory is cumulative so even if COGS sold is overstated for one period that will only reflect the overstatement of inventory in that period. there are still other periods to consider. So ending inventory shouldn’t just be overstated by the amount COGS is overstated for one period.

only III is false…in a declining price environment, LIFO will give higher net income which translates in higher equty and lower debt to equity. The rest are true.

fifo better for bs items. (in accounting it’s the discussion of being conservative or reliable) usually conservative is better but in finance we need current informations :slight_smile: shouldn’t double major -_-

What map say is what I said too. But the answer is b. I think book is FUC*ING around. schweser is on mad dope.