__________ is a true statement.
A)During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used
B)During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used
C)After inflation ends, distortion due to LIFO will disappear as inventory is sold
D)During periods of inflation, LIFO overstates earnings relative to FIFO During periods of inflation, the use of LIFO results in lower priced inventory remaining in stock; thus the balance sheet understates the actual inventory values.

Question

Quizplus · Accepted Answer

LIFO assumes that the most recent inventory is sold first, meaning that during periods of inflation, the inventory cost is higher, causing the company to use a higher cost of goods sold figure and therefore lower earnings. However, the remaining inventory on the balance sheet is valued at a lower cost, which is not representative of the actual inventory values. Therefore, during periods of inflation, LIFO makes the balance sheet less representative of actual inventory values than if FIFO were used.

__________ Is a True Statement