Some Companies That Use a Perpetual Inventory System and the LIFO

question 155

Multiple Choice

Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:

• A) Periodic LIFO often results in a higher valuation of inventory, thus reducing taxable income.
• B) This adjustment is necessary to record shrinkage losses.
• C) Periodic LIFO often results in a lower valuation of inventory, thus reducing taxable income.
• D) Periodic and perpetual costing procedures produce the same results if the year-end inventory has been counted properly. No adjustment would be needed.

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Definitions:

Book Value

The book value of an asset is its value on a balance sheet, calculated by subtracting any depreciation, amortization, or impairment costs from its original cost.

Salvage Value

The forecasted residual worth of an asset at the conclusion of its serviceable life.

Loss on Disposal

A financial loss that occurs when the selling price of an asset is less than its carrying amount.

Revenue Account

An account that shows the income generated by a business from its normal operational activities.