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1- Assume an oil company uses the LIFO inventory method. If this company holds the same...

1- Assume an oil company uses the LIFO inventory method. If this company holds the same amount of inventory (in barrels) at the end of the year as it did at the beginning, the inventory balance (in dollars) recorded on the balance sheet this year will be exactly the same as the ending balance of the previous year.

a) True

b) False

2- The article explains that, when the oil price rises, oil companies can enjoy tax benefits from LIFO by reducing their inventory to the same level that they had at the start of the year. The tax benefit increases when the company can reduce its inventory to a level that is even lower.

a) True

b) False

3- When an oil company that uses the LIFO method change their cost flow assumption to FIFO this year, all previous years' financial statements included in the 10-K should be updated to show the inventory balance under FIFO.

a) True

b)False

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Solution:-

1- Assume an oil company uses the LIFO inventory method. If this company holds the same amount of inventory (in barrels) at the end of the year as it did at the beginning, the inventory balance (in dollars) recorded on the balance sheet this year will be exactly the same as the ending balance of the previous year:-

b) False

2- The article explains that, when the oil price rises, oil companies can enjoy tax benefits from LIFO by reducing their inventory to the same level that they had at the start of the year. The tax benefit increases when the company can reduce its inventory to a level that is even lower:-

a) True

3- When an oil company that uses the LIFO method change their cost flow assumption to FIFO this year, all previous years' financial statements included in the 10-K should be updated to show the inventory balance under FIFO:-

b) False

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