GG Inc Uses LIFO

question 95

Multiple Choice

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2018 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2017. Assuming GG has a 40% income tax rate:

• A) Its reported cost of goods sold for 2018 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
• B) Its reported cost of goods sold for 2018 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.
• C) Its reported net income for 2018 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
• D) Its reported net income for 2018 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

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Definitions:

Economic Profit

The difference between total revenue and total costs, including explicit and implicit costs.

Implicit Costs

The opportunity costs of using resources that a firm already owns to produce goods or services instead of earning money from these resources elsewhere.

Accounting Costs

Expenses recognized in a company's financial statements or accounts, representing outlays related to its operations and maintenance.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs.