CFA Practice Question

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CFA Practice Question

Prices have been rising during the past few years. Companies Ashley and Taylor are in the same industry and use the same accounting methods except for inventory valuation. Ashley uses FIFO and Taylor uses LIFO. Which of the following statements is true?

A. The inventory on Taylor's books closely approximates current market prices.
B. The cost of goods sold for Taylor more closely approximates current replacement values.
C. The inventories for Taylor and Ashley are the same.
Correct Answer: B

Because Taylor uses LIFO, the more recent costs will be the costs in costs of goods sold. The more recent costs are the higher costs, as costs have been rising.

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