"Financial Report":Statement of American GAAP
Questions 1:
Greene Corporation uses the last-in,first-out(LIFO)inventory method,but most of the other companies in Greene’s industry use first-in,first-out(FIFO).To best compare Greene’s financial statements with its competitors’,an analyst would make which of the following adjustments to Greene’s ending inventory?It should be:
A、increased by the LIFO reserve.
B、decreased by the LIFO reserve.
C、increased by the change in the LIFO reserve for that period.
【Answer to question 1】A
【analysis】
A is correct.The analyst should add the ending balance in the LIFO reserve to the LIFO inventory to equal the ending balance for inventory on a FIFO basis:LIFO reserve=Inventory(FIFO)–Inventory(LIFO).
B is incorrect.Inventory(FIFO)=Inventory(LIFO)+LIFO Reserve
C is incorrect.Inventory(FIFO)=Inventory(LIFO)+LIFO Reserve
Questions 2:
The following information is available for a company that prepares its financial statements in accordance with US GAAP:
●It has production facilities with a net book value of$28.4 million.
●Recently,several other companies have entered the market,and the company now estimates that it will be able to generate cash flows of only$3 million per year for the next seven years with its facilities.
●The firm has a cost of capital of 10%.
Reflecting these recent events related to its production facilities,the company’s financial statements will most likely report(in millions)a:
A、$13.8 impairment loss on the income statement.
B、$7.4 reduction in the balance sheet carrying amount.
C、$13.8 reduction in operating cash flows.
【Answer to question 2】A
【analysis】
B is incorrect.It was determined with no discounting of future benefits,resulting in an incorrect impairment charge:28.4–3×7=7.4.
C is incorrect.This is a non-cash item and does not affect cash from operations.
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