Taylor Company Changed Its Inventory Cost Flow Assumption from FIFO

question 100

Multiple Choice

Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What would be the effect of this change on ending inventory in the year of the change?

• A) increased ending inventory
• B) decreased ending inventory
• C) no change in ending inventory
• D) cannot be determined from the information given

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Definitions:

Accumulated Depreciation

The total depreciation that has been recorded for an asset over its useful life.

Gain On Sale

The profit earned from the sale of an asset above its book value.

GAAP

A set of widespread accounting rules and standards, referred to as Generally Accepted Accounting Principles, used for financial reporting.

Fair Value

The estimated market value of an asset or liability, reflecting the amount at which it could be bought or sold in a current transaction between willing parties.