Which of the Following Is a Correct Statement About LIFO

question 2

Multiple Choice

Which of the following is a correct statement about LIFO and the LIFO reserve?

• A) The LIFO reserve can increase when inventory costs are decreasing.
• B) The LIFO reserve makes it difficult to compare ratios with companies who use FIFO to value their inventory.
• C) The LIFO reserve is reported on a company's income statement.
• D) The LIFO reserve can be used to determine how much income tax the company has saved since it started using LIFO.

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Definitions:

Double Taxation

The taxation of the same income or financial transaction at two different levels, such as corporate profits and then again as dividends to shareholders.

Corporation

A corporation is a legal entity that is separate and distinct from its owners, offering limited liability protection to its shareholders, and is capable of owning property, entering into contracts, and being taxed.

Income Taxes

Taxes imposed by the government on the income earned by individuals and corporations.

Partnerships

A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.