Question

With respect to LIFO, which of the following is incorrect? If a company uses LIFO for tax purposes it must use it for GAAP purposes If the LIFO reserve increases in a given year, then LIFO COGS is higher than it would have been if FIFO had been used for that year LIFO results in better matching on the income statement than FIFO LIFO results in inventory levels on the balance sheet that are closer to current cost than FIFO

Answer 1

The incorrect statement is LIFO results in inventory levels on the balance sheet that are closer to current cost than FIFO

LIFO or last in first out method assumes that inventory purchased latest will be sold first. Hence, the ending inventory on balance sheet reflects inventory purchased earlier/earliest and hence does not reflect current cost

FIFO reflects current cost of inventory on balance sheet since it assumes that inventory purchased first will be sold first.

All other statements are correct