During 2016,WW Inc.reduced its LIFO eligible inventory quantities due to a problem with its major supplier.The effect of this liquidation was to increase its cost of goods sold by approximately $50 million.WW has a 40% income tax rate.If WW had not experienced these supplier problems and the resulting liquidation:
A)Its 2016 net income would have been $30 million lower because inventory purchase prices were rising.
B)Its 2016 net income would have been $30 million lower because inventory purchase prices were declining.
C)Its 2016 net income would have been $30 million higher because inventory purchase prices were rising.
D)Its 2016 net income would have been $30 million higher because inventory purchase prices were declining.

Question

Quizplus · Accepted Answer

The liquidation of LIFO inventory increased COGS by $50 million, suggesting that older, cheaper inventory was used, which would have increased net income by $30 million if prices were declining.