Comparing Inventory Methods Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results.
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Comparing Inventory Methods

Assume that a firm separately determined inventory under FIFO and LIFO and

then compared the results.

a. In each dropdown that follows, select the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices.

FIFO inventory A.< B. > C.= LIFO inventory

FIFO cost of merchandise sold A.< B.> C.=   LIFO cost of merchandise sold

FIFO net income A.< B.> C.=LIFO net income

FIFO income taxes A.< B.> C.= LIFO income taxes

b. Why would management prefer to use LIFO over FIFO in periods of rising prices?

  1. The income shown on the company's tax return would be lower if LIFO rather than FIFO were used; thus, there is a tax advantage of using LIFO.
  2. The inventory value would be lower if LIFO rather than FIFO were used; thus, there is a tax advantage of using LIFO.
  3. The income shown on the company's tax return would be higher if LIFO rather than FIFO were used ; thus giving a better dividend to the shareholders.


A.1

B.2

C.3

Top Answer

Part A FIFO inventory &gt; LIFO inventory FIFO cost of mechandise sold &lt; LIFO cost of merchandise sold FIFO... View the full answer

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