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 of the following statements is true?
A)Summer's total net income for the past 20 years is greater than it would have reported using another inventory method.
B)Summer will have paid more income taxes over the past 20 years than it would have if it had used the FIFO 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

As prices have consistently increased over the 20-year period and the company has maintained the same inventory quantities, using the LIFO inventory method would result in the inventory value being understated on the balance sheet. This means that the ending inventory reported on the balance sheet may be significantly lower than its current value. The other options are not necessarily true. The choice between LIFO and FIFO methods depends on various factors, including the type of business and market conditions, and there are no rules that require a company to use a specific inventory method indefinitely. Also, the impact on net income and income taxes depends on the specific circumstances of the company and the market conditions.