6.3 Compare the effects of the different costing methods on the financial statements
1) The choice of inventory costing method does not have an effect on net income.
2) In periods of ricing prices, the average cost method generates gross profit, net income, and income tax amounts that fall below the FIFO method.
3) In order to pay the least income tax possible in periods of decreasing inventory costs, the company should use which of the following inventory costing methods?
A) FIFO
B) Perpetual
C) Average cost
D) Specific identification
E) Periodic
4) In order to pay the least income tax possible in periods of constant costs, the company should use which of the following inventory costing methods?
A) FIFO
B) Perpetual
C) Average cost
D) Periodic
E) Any method, as constant costs have no effect on net income or taxes for the period
5) ________ helps investors compare a company's financial statements from one period to the next.
A) Reliability
B) Consistency
C) Objectivity
D) Entity
E) Comparability
6) Consistency is mandated by:
A) CRA.
B) the OSC.
C) IFRS and Canadian ASPE.
D) the federal government.
E) the provincial government.
7) In order to attract investors and borrow on attractive terms, what method would a company use in times when inventory costs are rising?
8) What is the most popular inventory costing method?
9) __________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing.
10) If a company wants a "middle ground" solution to net income and the amount of income taxes that the
company will pay, what method would they use to value their inventory?