Summer, Inc.has been in business for 20 years.During that time the company has consistently used the LIFO inventory costing method.Because of inflation, prices for merchandise have increased consistently over the 20 years.The company has maintained the same inventory quantities over the 20-year period.Which one of the following statements is true?
A) Summer, Inc.will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method.
B) Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method.
C) Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules.
D) The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

Question

Quizplus · Accepted Answer

Since prices for merchandise have consistently increased over the 20-year period and the company has maintained the same inventory quantities, the LIFO method would result in the most recent (and therefore more expensive) inventory items being recorded as sold first. As a result, the ending inventory figure reported on the balance sheet may be significantly lower than its current value, as it reflects the older, lower-cost inventory items.