What Happens When Prices Are Falling

question 18

Multiple Choice

What happens when prices are falling?

• A)LIFO will result in lower net income and a lower inventory valuation than will FIFO.
• B)LIFO will result in lower net income and a higher inventory valuation than will FIFO.
• C)LIFO will result in higher net income and a higher inventory valuation than will FIFO.
• D)LIFO will result in higher net income and a lower inventory valuation than will FIFO.

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Definitions:

Accounts Payable

Liabilities of a company that represent amounts owed to creditors for goods and services received but not yet paid for.

Journal Entry

A record in the books of account that represents a financial transaction.

Payroll Taxes Expense

Taxes that employers are required to pay based on the wages and salaries of their employees, such as Social Security and Medicare taxes.

FICA Tax

A U.S. federal payroll tax used to fund Social Security and Medicare, distributed between employees and employers.