Why would a company switch to the LIFO method of inventory valuation? (a) By switching to LIFO, reported earnings will be higher. (b) A new tax law requires companies using LIFO for reporting purposes also to use LIFO for figuring taxable income. (c) LIFO produces the largest cost of goods sold expense in a period of inflation and thereby lowers taxable income and taxes. (d) A survey by Accounting Trends and Techniques revealed that the ___ switch to LIFO is a current accounting "fad."
Why would a company switch to the LIFO method of inventory valuation?
(a) By switching to LIFO, reported earnings will be higher.
(b) A new tax law requires companies using LIFO for reporting purposes also to use LIFO for figuring taxable income.
(c) LIFO produces the largest cost of goods sold expense in a period of inflation and thereby lowers taxable income and taxes.
(d) A survey by Accounting Trends and Techniques revealed that the ___ switch to LIFO is a current accounting "fad."
LIFO method works on the assumption that most recent goods added to company inventory have to be sold first
Option a is correct
Reason:
If the cost of goods purchased falling instead of rising then the use of the LIFO method yields a high return to the organization as recent products added to inventory are cheaper
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