CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

When comparing FIFO with LIFO, which of these arguments is INCORRECT? (Assume rising prices.)
A. FIFO more closely follows the actual physical flow of many inventory items.
B. The dollar amount reported as cost of goods sold under FIFO more closely approximates current cost of goods sold.
C. The dollar amount reported as ending inventory under FIFO more closely approximates the current cost of inventory.
Explanation: A is correct because the FIFO method more closely follows the actual physical flow of most inventory items. B is incorrect because LIFO, not FIFO, reports the more recent, higher-priced goods as cost of goods sold. C is correct because ending inventory under FIFO is comprised of the newer, higher-priced goods, which is a closer approximation of current costs.

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