All Other Things Being Equal, If a LIFO Liquidation Occurs

question 8

Multiple Choice

All other things being equal, if a LIFO liquidation occurs during a period of rising prices, which of the following statements about the effects on a firm's financial statements is generally true?

I. Cost of goods sold increases.
II. Gross profit margin increases.
III. Taxes decrease.
IV. Net income increases.

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

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Definitions:

Cash for Clunkers

A government program intended to stimulate the economy and encourage the purchase of new vehicles by offering financial incentives for trading in older, less-efficient cars.

Bullwhip Effect

A phenomenon in supply chains where small variations in demand at the retail level cause progressively larger fluctuations in demand at the wholesale, distributor, and manufacturer levels.

Cash for Clunkers

A government program designed to stimulate the economy and improve the environment by incentivizing the trade-in of older, less fuel-efficient vehicles for newer, more efficient ones.

Bullwhip Effect

A phenomenon where small fluctuations in demand at the retail level significantly amplify as they move back through the supply chain towards manufacturers.