All of the following items noted in Kelleys Notes on Landesigns Accounting Practices would be considered indicators of high earnings quality EXCEPT Landesigns use of: A) short useful life estimates for fixed assets. B) the 200 percent declining balance method of depreciation on its furniture and equipment. C) First in, first out (FIFO) accounting in a mildly inflationary economy. D) an expected return on its defined benefit pension plan assets at 2-3 percentage points below the long-term rate of return for similar assets. Your answer: B was incorrect. The correct answer was C) First in, first out (FIFO) accounting in a mildly inflationary economy. I thought FIFO was the preferred accounting method?
LIFO is best for IS items since it matches COGS with current prices. Since this is asking about earnings quality, you would care about the income statement. FIFO is good for the balance sheet.
LIFO is the prefered method as it gives better estimate of actual COGS, Inventory is then adjusting using LIFO reserve
lifo for cogs fifo for inventory