Davis Company Uses LIFO for All of Its Inventories

question 30

Multiple Choice

Davis Company uses LIFO for all of its inventories.During its second quarter of 20X9,Davis experienced a LIFO liquidation.Davis fully expects to replace the liquidated inventory in the early part of the third quarter.How should Davis report the inventory temporarily liquidated on its income statement for the second quarter?

• A)Cost of goods sold for the second quarter should include the acquisition cost of the goods temporarily liquidated.
• B)Cost of goods sold for the second quarter should include the expected replacement cost of the goods temporarily liquidated.
• C)Cost of goods sold for the second quarter should not include the expected replacement cost of the goods temporarily liquidated.
• D)Cost of goods sold for the second quarter is not affected by the temporary liquidation of LIFO inventory.

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Definitions:

Salvage Value

The calculated remaining value of an asset at the conclusion of its effective life.

Technician Costs

Technician costs refer to expenses related to employing or contracting technicians, including wages, benefits, and any training-related costs for technical staff.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.

Net Income

The total profit of a company after all expenses, including taxes and operational costs, are deducted from revenue.