When Production Exceeds Sales and the Company Uses the LIFO

question 217

Multiple Choice

When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:

• A)less than net operating income reported under variable costing.
• B)greater than net operating income reported under variable costing.
• C)equal to net operating income reported under variable costing.
• D)higher or lower because no generalization can be made.

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Definitions:

Shareholders' Equity

This represents owners' claims after all liabilities have been deducted from the total assets of a company.

Total Liabilities

The sum of all financial obligations a company owes to outside parties.

Dividends Declared

An announcement by a company's board of directors of a dividend payment to shareholders, indicating the amount and payment date.

Dividends Payable

A liability on the balance sheet representing the amount of dividends that a company owes to its shareholders but has not yet paid.