Noland, Inc. uses the LIFO method of inventory costing and is facing the possibility of a LIFO liquidation for the current year. Merchandise purchase prices have increased since the LIFO method was adopted. If the company does not purchase additional merchandise before year-end, which one of the following effects will occur as a result of a LIFO liquidation?

Question

Quizplus · Accepted Answer

When a LIFO liquidation occurs, older, lower-cost inventory is used to calculate the cost of goods sold. This results in lower cost of goods sold and higher reported earnings for the current year, as the merchandise purchase prices have increased since the LIFO method was adopted.