kim226

A U.S. company uses the LIFO method to value its inventory for their income tax return. For its financial statements prepared for shareholders, the company may:

A) use any other inventory method under generally accepted accounting principles (GAAP).

B) only use the LIFO method.

C) use the FIFO method, but must disclose a LIFO reserve.

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The LIFO conformity rule in the U.S. requires firms to use LIFO for their financial statements if they use LIFO for income tax purposes.

kim226

In an environment of increasing prices, the last-in first-out (LIFO) inventory cost method results in:

A) cost of sales near current cost and inventory below replacement cost.

B) inventory near replacement cost and cost of sales below current cost.

C) cost of sales below current cost and inventory above replacement cost.

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LIFO assumes the most recently purchased items are the first items sold. In an increasing or decreasing price environment, LIFO results in cost of sales that are nearer to current costs compared to other inventory cost methods, and inventory values based on outdated prices (below replacement cost if prices are increasing, above replacement cost if prices are decreasing).

kim226

Goldberg Inc. produces and sells electronic equipment. Which of the following inventory costs is most likely to be recognized as an expense on Goldberg’s financial statements in the period incurred?

A) Conversion cost.

B) Selling cost.

C) Freight costs on inputs.

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Selling costs are expensed in the period incurred since they result in no future benefit (i.e. the inventory has been sold). Conversion costs and freight costs add value in assisting in the future sale of the related inventory. Therefore, these costs are not recognized until the inventory is ultimately sold.