A Firm Has Used LIFO for Several Years During Which

question 26

Multiple Choice

A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2017 by selling more merchandise than it purchases, the effect on 2017 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2017, is:

• A) net income for 2017 will be greater if the inventory quantity declines.
• B) net income for 2017 will be less if the inventory quantity declines.
• C) net income for 2017 will not be affected because of the inventory quantity decline.
• D)can't tell from the information given.

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Definitions:

Perpetual Inventory System

A bookkeeping approach that instantly logs the sale or acquisition of stock using computerized point-of-sale systems and enterprise asset management programs.

FIFO

FIFO, or First-In, First-Out, is an inventory valuation method where goods produced or acquired first are sold, used, or disposed of first.

Ending Inventory

The full value of articles ready to be sold at the conclusion of an accounting duration.

Perpetual Inventory System

An inventory tracking system where updates are made continuously to reflect sales, purchases, and returns in real-time.