13. A drawback to using _______ when inventory costs are rising is that the company reports lower net
income.
A. LIFO
B. FIFO
C. specific-identification costing
D. average costing
14. The balance sheet format that lists assets
Lifo
To answer question 13, we need to understand the different methods of inventory costing and their impact on net income.
A. LIFO (Last-In, First-Out) method assumes that the most recent inventory purchased is sold first. It can lead to lower net income during periods of rising inventory costs because the cost of goods sold (COGS) will be higher, reducing the company's reported profit.
B. FIFO (First-In, First-Out) method assumes that the oldest inventory purchased is sold first. It generally results in higher net income during periods of rising inventory costs because the COGS will be lower compared to LIFO.
C. Specific-Identification Costing method identifies and tracks the cost of each individual item of inventory. While it provides the most accurate measure of COGS, it is mostly used for high-value items and impractical for most companies.
D. Average Costing method calculates COGS by taking the average cost of all inventory items. It smoothens out fluctuations in inventory costs and may result in moderate net income during periods of rising costs.
Based on the options provided, the correct answer would be A. LIFO.
To find this answer, one could:
1. Review their knowledge of different inventory costing methods and their impact on net income.
2. Consider the effect of rising inventory costs on net income.
3. Evaluate the implications of each method (LIFO, FIFO, Specific-Identification, Average Costing) on net income during periods of rising inventory costs.
4. Determine that LIFO is the method that generally leads to lower net income in such situations.
Moving on to question 14, we need to understand the different formats of a balance sheet.
The two common formats for a balance sheet are:
1. Classified Balance Sheet: This format organizes assets and liabilities into current and non-current categories. Assets are listed first and are usually classified as current assets (expected to be converted into cash or used within a year) or non-current assets (expected to be held for the long term). Liabilities follow a similar structure, with current liabilities (expected to be paid within a year) and non-current liabilities (long-term obligations).
2. Report Form Balance Sheet: This format lists assets on the left-hand side and liabilities and equity on the right-hand side. It does not differentiate between current and non-current assets/liabilities and presents them as a single combined total.
Based on the information provided, the question does not specify which format, so we cannot determine the correct answer.
To find this answer, one could:
1. Review their knowledge of balance sheets and their formats.
2. Understand the distinction between a classified balance sheet and a report form balance sheet.
3. Analyze the options provided and compare them to the formats mentioned.
4. If the question specified a format, determine the corresponding option.