A LIFO liquidation occurs when ________ fall(s)below the ending inventory quantities in the previous period.

Question

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LIFO (Last-In, First-Out) assumes that the last inventory items purchased are the first to be sold. Thus, during times of inflation, the cost of goods sold will be higher because the more expensive items will be sold first, leaving the cheaper items for later. If inventory quantities fall below the ending inventory quantities in the previous period (option B), it means that the cheaper inventory items have been sold off first, and the more expensive items are left in inventory. This leads to a LIFO liquidation, where the cost of goods sold will now include the more expensive items, causing a distortion of the cost of goods sold and potentially higher taxes.

A LIFO Liquidation Occurs When ________ Fall(s)below the Ending Inventory