Question

answer the following true or false questions using the dropdown menus provided. in year 1, mandi's milk has a net income of $200,000 and a total assets of $500,000. in year 0, mandi's milk had a net income of $150,000 and a total assets of $400,000. true or false: mandi's milk's return on assets is 0.40. for year 1 [ select ] true or false: the recording of an impairment loss will reduce working capital. [ select ] umbridge's umbrellas has been forced to reduce the value of its see-through umbrellas due to their declining popularity. true or false: as the result of applying lower of cost or market, gross profit will decrease. [ select ] shreya's smoothies is debating whether to use perpetual fifo or lifo for her produce inventory, and is considering how it may impact her financial statement ratios. assume shreya's smoothies is experiencing an inflationary period and would not liquidate any lifo layers. true or false: shreya would have a higher gross profit percentage using perpetual fifo than perpetual lifo. [ select ]

Answer 1

Mandi's Milk's return on assets is correctly calculated as 40%, making the first statement true. The statement aabout impairment loss reducing working capital is potentially false without more context. The application of lower of cost or market will decrease gross profit, which is true. For Shreya's Smoothies, using perpetual FIFO during inflation would result in a higher gross profit percentage than LIFO, which is true.

Step-by-step explanation:

The calculation of Mandi's Milk's return on assets (ROA) for year 1 is found by dividing the net income by total assets. ROA = $200,000 / $500,000, giving us an ROA of 0.4 or 40%, so the statement is true.

Recording an impairment loss will reduce the carrying amount of the asset and thereby reduce the company's equity. However, working capital is defined as current assets minus current liabilities, and unless the impaired asset is a current asset, working capital will not be directly affected. Therefore, without more specific information about the nature of the assets, the statement regarding the impact on working capital may be false.

Using the lower of cost or market rule, if the market value of an inventory item falls below its cost, the value of inventory is written down to the market value. This reduces the value of current assets and also reduces gross profit since cost of goods sold will be higher, which makes the statement true.

During an inflationary period, perpetual FIFO generally results in lower costs of sales and higher gross profit percentage compared to perpetual LIFO because the oldest (and typically cheaper) costs are matched against revenue. Therefore, Shreya would indeed have a higher gross profit percentage using perpetual FIFO than perpetual LIFO, making the statement true.