Exam 4: Analyzing Investing Activities

LIFO provides a better match of current expenses to revenues on the income statement, while FIFO provides a better ending inventory figure by more closely reflecting current costs.

Analysis of a company's assets will help evaluate its: I. liquidity. II. solvency. III. operational capacity. IV financing ability.

The following information can be found in ABC Co.'s financial statements. Finished Goods \ 251,690 \ 195,360 Work in Process and purchased parts 245,123 17,377 Raw Materials 136,568 106,789 633,381 488,581 Less excess of current cost over stated LIFO value \ 570,430 \ 417,395 Retained earnings \3 ,526,000 \ 3,159,000 Assume a tax rate of 35%. Inventories valued using the LIFO method represented approximately 80% of consolidated inventories. -What will be the value of inventory for 2006 if ABC used FIFO valuation?

Capitalization of interest costs results in higher reported net income in the period of capitalization and lower net income in future periods.

Which of the following steps are required to adjust LIFO to FIFO?

Gains and losses from the sale of plant, property and equipment should be included in cost of goods sold as in reality they reflect the cost of producing goods for sale.

Below is selected information taken from the balance sheet of LongLi Corporation as of 12/31/06. 12/31/05 12/31/06 Gross plant, property and equipment \ 20,000 \ 25,000 Accumulated depreciation \ 10,000 \ 10,000 From the operating section of the statement of cash flows, you determine that the depreciation expense for the year was $2,000 and loss on sales of assets was $5,000. The investing section reveals that the company purchased equipment for $14,000 and sold equipment for $2,000. In the footnotes to the financial statements, the company states: At the beginning of 2006, we determined that the useful life of our assets was higher than originally believed. Accordingly we have increased the useful life from 10 years to 15 years in 2006. a. What was the gross book value of the equipment that was sold? b. What was the net book value of the equipment that was sold? c. With respect to the change in the useful lives of the assets: i. What is the effect on 2005's financial statements? ii. What is the effect on 2006's financial statements?