1. A company has decided to change its inventory valuation method from FIFO to LIFO. Which of the following is likely to be true if the prices of goods are rising? A) Cost of goods sold will decrease. B) Net income will increase. C) Income tax expense will increase. D) Ending inventory will decrease. Answer: D) Ending inventory will decrease. Rationale: When prices are rising, LIFO results in the latest, higher-cost items being used in cost of goods sold calculations, leaving the older, lower-cost items as ending inventory. 2. During a period of consistent sales growth, a discrepancy was found between recorded sales and actual cash received. Which of the following could explain this discrepancy? A) Overstated sales returns and allowances. B) Understated accounts receivable. C) Lapping of accounts receivable. D) Overstated beginning inventory. Answer: C) Lapping of accounts receivable. Rationale: Lapping involves delaying the recording of cash receipts to cover up theft or misappropriation of funds, leading to a discrepancy between recorded sales and actual cash received. 3. A company's trial balance shows a debit balance in the accumulated depreciation account. Which of the following could be a possible reason? A) A clerical error in recording depreciation expenses. B) An error in the calculation of depreciation expense. C) Reversal of a prior period's depreciation expense. D) Sale of a depreciable asset at a loss. Answer: A) A clerical error in recording depreciation expenses. Rationale: Accumulated depreciation is a contra-asset account and should have a credit balance. A debit balance may indicate a recording error. 4. Which of the following statements is true regarding the impact of capitalizing versus expensing a cost?