CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

A company using the LIFO inventory method reports a LIFO reserve at year-end of $85,000, which is $20,000 lower than the previous year. If the company had used FIFO instead of LIFO in that year, the company's financial statements would have reported ______.
A. a lower cost of goods sold but a higher inventory balance
B. a higher cost of goods sold but a lower inventory balance
C. both a higher cost of goods sold and a higher inventory balance
Explanation: The negative change in the LIFO reserve would increase the cost of goods sold under FIFO compared to LIFO. FIFO COGS = LIFO COGS - Change in LIFO reserve

The LIFO reserve has a positive balance, so FIFO inventory would be higher than LIFO inventory. FIFO inventory = LIFO inventory + LIFO reserve

User Contributed Comments 0

You need to log in first to add your comment.