Davis Company Uses LIFO for All of Its Inventories

question 1

Multiple Choice

Davis Company uses LIFO for all of its inventories.During its second quarter of 2009,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.

---

Definitions:

Cash Discount Amount

A reduction in the price of an item or service that is offered by the seller as an incentive for early payment by the buyer.

Cash Discount

A discount given for a cash purchase.

Cost Of Goods Sold

The direct costs attributed to the production of goods sold by a company, including materials and labor.

Expensive Financing

Funding options for companies or individuals that come with high costs, often due to high interest rates or fees.