Libretto,Inc

question 27

Multiple Choice

Libretto,Inc.,uses the FIFO method and had ending inventory for 2010 of $35,000.If Libretto had used the LIFO method,its ending inventory would have been $32,000.Assume equal beginning inventories for the two methods.If Libretto had used the LIFO method instead of the FIFO method in 2010,how would its income before income tax have changed?

• A)Decrease of $35,000
• B)Increase of $35,000
• C)Decrease of $3,000
• D)Increase of $3,000

---

Definitions:

Adjusting Entry

Accounting records created at the closing of an accounting cycle to distribute revenues and costs to the period they truly belong.

Interest Revenue

Income earned by an entity from lending money or from investments in interest-bearing assets like bonds, savings accounts, or loans.

Unadjusted Trial Balance

A list of all the ledger accounts with their balances at a specific point in time before any adjustments have been made.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries are made, used to verify the equality of debits and credits in the accounting process.