CFA Practice Question

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CFA Practice Question

During periods of sustained rising prices, how will the liquidation of early LIFO layers affect a company's cost of goods sold, net income, and income tax liability, respectively?

A. increase; increase; increase
B. decrease; decrease; increase
C. decrease; increase; increase
Correct Answer: C

Assuming rising prices, liquidation of early LIFO layers will result in a charge to cost of goods sold of the older, lower-cost inventory items. Cost of goods sold will decrease, which will result in a higher net income and higher tax liability.

User Contributed Comments 1

User Comment
Antoinepo Key word : Liquidiation. Since it affect older inventory , their cost is lower then the new one which lowers the average cost and lower COGS.
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