Assuming that there are inflationary trends in the economy, the inventory amount shown in the balance sheet, if based on LIFO, would normally be:
A) lower than the FIFO value.
B) equal to current market value.
C) higher than the FIFO value.
D) higher than current market value.

Question

Quizplus · Accepted Answer

If there are inflationary trends in the economy and the inventory amount is based on the LIFO method, then the inventory cost will reflect the most recent purchases, which will be at the higher current market value. Therefore, the cost of goods sold will be higher and the value of inventory will be lower, resulting in lower net income and lower taxes. Hence, the inventory amount shown in the balance sheet, if based on LIFO, would normally be lower than the FIFO value.

Assuming That There Are Inflationary Trends in the Economy, the Inventory