A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2014 by selling more merchandise than it purchases, the effect on 2014 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2014, is:
A) net income for 2014 will be greater if the inventory quantity declines.
B) net income for 2014 will be less if the inventory quantity declines.
C) net income for 2014 will not be affected because of the inventory quantity decline.
D) can't tell from the information given.

Question

Quizplus · Accepted Answer

When a firm using LIFO reduces its inventory quantities, it sells older, cheaper inventory, which results in lower cost of goods sold and higher net income.

A Firm Has Used LIFO for Several Years During Which