CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

In a period of rising prices, many firms adopt the periodic LIFO method of accounting for inventory cost for tax purposes. When compared with periodic FIFO or average cost, ______
A. LIFO allocates older and therefore smaller inventory costs to cost of goods sold
B. LIFO allocates the newest and therefore the largest inventory costs to cost of goods sold
C. LIFO produces an inventory valuation on the balance sheet that is always closer to replacement cost
Explanation: The latest costs, which are the highest costs, will be allocated to cost of goods sold. The higher cost of goods sold will cause income before taxes to be lower, and thus income taxes will be lower.

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