Management's Choice to Use LIFO or FIFO Can Make a Financial

question 73

Multiple Choice

Management's choice to use LIFO or FIFO can make a financial analyst's efforts to compare companies difficult. The financial analyst's job is made easier because of the

• A) requirement that the financial statements and tax return must use the same inventory valuation methodology
• B) fact that most companies in an industry use the specific identification method
• C) use of the weighed average method
• D) disclosure of the LIFO reserve

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Definitions:

Cumulative Pretax Income

The total pre-tax income earned by a company over a specified period, before any taxes are deducted.

Useful Life

The period over which an asset is expected to be usable by an entity, affecting its depreciation or amortization schedules.

Revised Estimated

An updated forecast or projection based on new information or a more accurate assessment.

Depreciating Equipment

This refers to the reduction in the value of equipment over time due to wear and tear or obsolescence, recognized as an expense in accounting.