1.Which of the following is true if the firm uses FIFO for inventories of goods it sells to its customers and if those costs are decreasing over time?
- FIFO will produce a higher cost of goods sold expense, and hence a higher income before tax and income tax expense than either average or LIFO.
- FIFO will produce a higher cost of goods sold expense, and hence a lower income before tax and income tax expense than either average or LIFO.
- FIFO will produce a lower Cost of goods sold expense, and hence a lower income before tax and Income tax expense than either average or LIFO.
- FIFO will produce a lower Cost of goods sold expense and hence a higher Income before tax and income tax expense than either average or LIFO.
2.Which statement best describes the depreciation policies of most firms with respect to GAAP financial statements and income tax returns?
- Firms generally use accelerated depreciation both for financial statements and for income tax returns.
- Firms generally use straight-line depreciation for financial statements and accelerated depreciation for income tax returns.
- Firms generally use accelerated depreciation for financial statements and straight-line depreciation for income tax returns.
- Firms generally use straight-line depreciation both for financial statements and for income tax returns