LIFO inventory layers
A)occur when ending inventory is less than beginning inventory.
B)are liquidated when ending inventory exceeds beginning inventory.
C)are created in years in which inventory purchases exceed sales.
D)must be disclosed in the annual report.
E)none of the above

Question

Quizplus · Accepted Answer

LIFO inventory layers are created in years in which inventory purchases exceed sales because the LIFO method assumes that the last inventory items purchased (the most recent or "last-in") are the first ones sold (the first "out" of inventory). As a result, when purchase levels exceed sales levels, new layers are added to the inventory, and these layers can be liquidated in later periods when sales are higher than purchases.

LIFO Inventory Layers