FINANCE123D CFR Practice Test Questions and Answers 2025/2026 University of Notre Dame

CFR Practice Test Notes:
Chapter 10
 Which statement about inventory accounting is false?
o The tax advantage of LIFO is that it provides a lower net income than FIFO
during periods of rising prices and decreasing inventory quantities.
o Managers can avoid the negative tax implications of LIFO liquidations by
purchasing enough inventory before year-end to bring inventory up to the level at
the start of the year.
o The size of the difference between COGS under FIFO and COGS under
replacement cost depends on the amount of change in input cost as well as the
inventory turnover.
o To avoid providing an incentive for managers to engage in intentional LIFO
liquidations, bonus contracts subtract out any profits from LIFO liquidations.
 The deficiency of the FIFO cost flow assumption is the failure to
o Match current costs with current revenues.
o Match current costs with oldest revenues
o Match oldest costs with current revenues
o Match oldest costs with oldest revenues
 Ending LIFO inventory:
o Take earliest units * unit price.
 LIFO COGS:
o Latest units * unit price
 FIFO COGS:
o Earliest units * unit price
 FIFO ending inventory:
o Latest Units * Unit price
 The conversion of a LIFO inventory to approximate the inventory at FIFO is
accomplished through the application of which formula?
o FIFO Inventory = LIFO Inventory + LIFO Reserve
 The formula to convert the LIFO COGS to FIFO COGS
o COGS LIFO – Increase in LIFO Reserve = COGS FIFO
 Reported a LIFO Reserve of 25,000 at end of year. Beginning reserve was 20,000 and
COGS was 197,500 under LIFO.
o 197,500 – (25,000-20,000) = 192,500
 As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are
matched against current sales dollars resulting in a profit margin that is:
o Inflated
o Deflated
o Lower than normal
o Always the same under FIFO
 LIFO’s tax advantage is that:
o It provides a higher net income than FIFO during periods of rising prices and
level inventory quantities.
o It provides a lower net income than FIFO during periods of rising prices and
level inventory quantities.

, o It provides a lower net income than FIFO during periods of falling prices and
level inventory quantities.
o It provides a lower net income than FIFO during periods of rising prices and level
inventory quantities.




 Assuming they use the LIFO method for costing its inventory, the lower of cost or market
for product N-05 is:
o 20
 Assuming they use the LIFO method for costing its inventory, the lower of cost or market
for product M-23 is:
o 42 (NRV-profit margin) < replacement < NRV
o 42 is middle and less than historical
 Which of the following statements regarding inventory accounting is true?
o FIFO charges the most recent costs against revenues on the income statement.
o In USA, FASB prefers replacement cost accounting because it recordings holding
gains on the financial statement as they arise.
o The primary difference between FIFO and LIFO is that each method makes
a different choice regarding which financial statement element is shown at
the out-of-date cost.
o The specific identification method of inventory accounting is generally
considered to be the most prevalent.
Chapter 11
 Expenditures included in the initial balance sheet carrying amount of a long-lived asset
are:
o Charge-off costs
o Expensed costs
o Intangible costs
o Capitalized costs
 Staley Enterprises purchased a machine for $260,000. The seller paid $900 freight to
deliver the machine. Staley used $4,600 of staff mechanics’ time to install the machine
and employee training cost $7,000. The state charged a 5% sales tax on the invoice price.
What is the capitalized cost of the machine?
o 260,000 + 4600 + 7000 + 13000
 An expenditure that increases a long-lived asset’s useful life should be:
o Capitalized
o Expensed
o Ignored
o Written off immediately