Question

1. Unlike rent, salaries, and utilities, depreciation

A. is more likely to involve an estimate.

B. is a non-cash expense.

C. is not an expense.

D. both A and B are correct.

E. both A and C are correct.

2. A supermarket that uses the LIFO inventory method for accounting purposes during

a period of rising prices (increasing purchase costs)

A. will report higher total assets than if it had used a different inventory method.

B. increases the chances that customers may experience health problems

after they purchase its dairy products.

C. will report a lower net income than if it had used a different inventory method.

D. both A and B are correct.

E. both B and C are correct.

Answer 1

1.D. both A and B are correct.

Depreciation is an estimate and it is a non cash expense.

Rent, salaries and utilities involve cash payments.

2.C.will report a lower net income than if it had used a different inventory method.

This is because in the time of rising prices if one uses LIFO to value inventory, then the cost of goods sold will be higher.

Higher cost of goods sold will result in lower net income.

So Using of LIFO during the period of rising prices will result in low net income and also low amount of current assets in form of inventory.