A Company That Uses the Last-In, First-Out (LIFO) Method of Inventory

question 104

Multiple Choice

A company that uses the last-in, first-out (LIFO) method of inventory pricing finds at an interim reporting date that there has been a partial liquidation of the base period inventory level. The decline is considered temporary and the partial liquidation is expected to be replaced prior to year end. The amount shown as inventory at the interim reporting date should

• A) be shown at the actual level, and cost of sales for the interim reporting period should include the expected cost of replacement of the liquidated LIFO base.
• B) be shown at the actual level, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base.
• C) not give effect to the LIFO liquidation, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base.
• D) be shown at the actual level, and the decrease in inventory level should not be reflected in the cost of sales for the interim reporting period.

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Definitions:

Equitable Relief

A type of legal remedy, including injunctions or specific performance, that requires a party to act or refrain from acting, rather than to pay damages.

Irreparable Harm

Damage or injury that cannot be adequately remedied by money damages and therefore often justifies a court's granting of injunctive relief.

Materially Breached

Pertaining to a serious violation or failure to perform one’s duties under a contract that justifies the other party's right to terminate the agreement.

Substantially Breached

A significant failure to fulfill one's duties under a contract, which justifies the other party's right to terminate the agreement and seek damages.