The Use of LIFO Rather Than FIFO for Inventory Costing

question 67

Multiple Choice

The use of LIFO rather than FIFO for inventory costing under normal economic conditions results in:

I. lower net income.
II. higher total assets.
III. higher retained earnings.
IV. unchanged retained earnings.

• A)II and III
• B)I, II, and IV
• C)I only
• D)I and IV

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Definitions:

Current Liabilities

Short-term financial obligations that are due within one year or within the normal operating cycle of the business, whichever is longer.

Acid-Test Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with its most liquid assets, excluding inventory.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Accounts Receivable Turnover

A financial ratio indicating how efficiently a company collects its accounts receivable, calculated as net credit sales divided by average accounts receivable.