If a Company Experiences a Liquidation of a LIFO Inventory

question 10

Multiple Choice

If a company experiences a liquidation of a LIFO inventory layer in the second quarter that is expected to be restored by the end of the annual financial reporting period,the company should

• A)treat the layer as if it were liquidated and include in cost of goods sold the expected replacement cost of the inventory sold.
• B)deplete the LIFO layer as if the interim period were an annual period.
• C)change to an alternative inventory cost method, such as FIFO, so that the problem of LIFO liquidation is not encountered.
• D)delay the recognition of both revenue and cost of goods sold on the inventory involved until a final determination of the LIFO inventory can be made at the end of the annual period.

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Definitions:

Material Change Report

A document filed by publicly traded companies to disclose any changes that could be considered important to shareholders or the market.

Insider Trade

Buying or selling a security by someone who has access to material, nonpublic information about the security.

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The process of searching for minerals or precious metals in the ground through geological research and physical exploration methods.

Gold Find

The discovery of gold, typically in significant quantities, which often prompts mining activities and economic interest in the area.