Which of the Following Is True Regarding the LIFO Method

question 166

Multiple Choice

Which of the following is true regarding the LIFO method of inventory costing?

• A) A company can use LIFO for tax purposes and FIFO for financial reporting purposes.
• B) Very few U.S. companies use the LIFO method.
• C) If a LIFO liquidation occurs, income tax expense will decrease.
• D) When prices are rising, income taxes are the lowest when the LIFO method is used.

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Definitions:

FICA Taxes

Taxes required by the Federal Insurance Contributions Act, funding Social Security and Medicare, deducted from employees' paychecks and matched by employers.

Social Security

A government program providing economic assistance to persons with inadequate or no income, funded by taxes on workers and employers.

Medicare Benefits

Medicare benefits refer to the health care services covered under Medicare, a United States federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant).

FICA Tax

Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare).