Q1. General Electric uses the (__________ / Weighted Average / __________) inventory cost-flow assumption(s). (Circle all that apply.)
Q2. Does the answer for Q1 comply with the Consistency Principle? (________ / No) Explain.
Q3. On December 31, Year 6, the balance sheet would have reported inventories of (__________ / $9,039) million if the first-in, first-out (FIFO) method had been used to value all inventories and ($9,645 / __________) million if the last-in, first-out (LIFO) method were used to value the domestic portion of inventories.
Q4. Circle the effect the LIFO cost-flow assumption has had on reported financial statement amounts since GE began operations. As a result of using LIFO, GE has reported:
a. $606 million (more / __________) in ending inventory.
b. $606 million (__________/ less) in cost of goods sold (COGS).
c. $606 million (more / __________) in income before income tax.
d. assuming a 40% tax rate, $242 million ($606 million x 40%) (more / __________) in tax expense.
Q5. The revaluation to LIFO (__________ / increased) from Year 5 to Year 6, which indicates there probably (__________ / was not) a LIFO liquidation.
Q6. In a period of inflation, the cost-flow assumption resulting in the lowest taxable income is (FIFO / Weighted Average / __________). This tax benefit is achieved by allocating the higher, more current inventory costs to (__________ / Ending Inventory).
Q7. General Electric would appear more profitable if it used (__________ / LIFO) to determine the value of all inventories. Would it really be more profitable? (Yes / __________) Explain.