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:

Operating Assets

Assets used in the daily operations of a business to generate income, including equipment, machinery, and buildings.

Sales

The total revenue a company generates from selling goods or services over a specific period of time.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within a year or the business cycle, whichever is longer.

Fixed Assets

Long-term tangible assets used in the operation of a business and not expected to be converted into cash within a year.