Accountants should be aware that LIFO liquidations can potentially result in which of the following?
A) If older less costly layers are liquidated, a correspondingly lower cost of goods sold will result.
B) If older less costly layers are liquidated, the company may be faced with higher taxes for those deferred in previous periods.
C) If older less costly layers are liquidated, a correspondingly higher gross profit will result.
D) All of these could result.

Question

Quizplus · Accepted Answer

All of these could potentially result from a LIFO liquidation, depending on the specific inventory layers that are liquidated. If older, less costly layers are liquidated, the cost of goods sold will be correspondingly lower, which could result in a higher gross profit. However, if the company has deferred taxes for those older layers, they may be faced with higher taxes in the current period. Therefore, all of these outcomes are possible.

Accountants Should Be Aware That LIFO Liquidations Can Potentially Result