A company using the LIFO inventory method reports
A company using the LIFO inventory method reports a LIFO reserve at year-end of $85,000, which is $20,000 lower than the prior year. If the company had used FIFO instead of LIFO in that year, the company’s financial statements would have reported:
A. a lower cost of goods sold, but a higher inventory balance.
B. a higher cost of goods sold, but a lower inventory balance.
C. both a higher cost of goods sold and a higher inventory balance.
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2024-11-01 16:25:20
Ans:C.
The negative change in the LIFO reserve would increase the cost of goods sold under FIFO compared to LIFO.
FIFO COGS = LIFO COGS – Change in LIFO reserve.
The LIFO reserve has a positive balance so that FIFO inventory would be higher than LIFO inventory.
FIFO inventory = LIFO inventory + LIFO reserve.
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