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    Dao My Hanh
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    Zimt AG uses the FIFO inventory method, while Nutmeg Inc. uses the LIFO method. During periods of rising prices, Nutmeg's reported ending inventory balance would be too low compared to the cost of replacing inventory, since LIFO assumes the oldest inventory units are sold first. Zimt's reported balance would approximate the current replacement cost since FIFO assumes newest inventory units are sold first.

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    Zimt AG uses the FIFO inventory method, while Nutmeg Inc. uses the LIFO method. During periods of rising prices, Nutmeg's reported ending inventory balance would be too low compared to the cost of replacing inventory, since LIFO assumes the oldest inventory units are sold first. Zimt's reported balance would approximate the current replacement cost since FIFO assumes newest inventory units are sold first.

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    9 views1 page

    Practice CFA Institute 5

    Uploaded by

    Dao My Hanh
    Zimt AG uses the FIFO inventory method, while Nutmeg Inc. uses the LIFO method. During periods of rising prices, Nutmeg's reported ending inventory balance would be too low compared to the cost of replacing inventory, since LIFO assumes the oldest inventory units are sold first. Zimt's reported balance would approximate the current replacement cost since FIFO assumes newest inventory units are sold first.

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    of 1

     

     

    Done Practicing
    Inventories This Question: 01:01 Total: 42:16

      Question 14 of 80 3 4 Review Answer On Off

    Correct

    Practice Problem Correct Answer Your Answer


    Q. Zimt AG uses the FIFO method, and Nutmeg Inc.
    A
    uses the LIFO method. Compared to the cost of
    replacing the inventory, during periods of rising prices B ✓
    the ending inventory balance reported by:
    C
    A. Zimt is too high.
    Confidence Level:
    B. Nutmeg is too low.
    C. Nutmeg is too high. High

    Continue
    Solution
    B is correct. Nutmeg uses the LIFO method, and thus
    some of the inventory on the balance sheet was purchased Related Lessons:
    Learn more about this topic
    at a (no longer available) lower price. Zimt uses the FIFO
    method, so the carrying value on the balance sheet
    represents the most recently purchased units and thus
    approximates the current replacement cost.

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