An analyst has determined that Megamore Industries uses the LIFO inventory method. Megamore’s reported gross income for the year is most likely to be overstated and require adjustment by the analyst if, during the year, Megamore experienced an A. increase in inventory prices B. decrease in inventory prices C. increase in inventory quantities D. decrease in inventory quantities The answer is D. Can someone please explain why please? Why can’t it be B???
d because you are going into historical cost layers that may not be reflective of current prices even if inv prices are falling, income will still reflect current cost conditions
Because LIFO COGS is the correct measure and does not need adjustment by the analyst when prices decrease. In case of inventory quantity decrease, the cost will erode to the beginning (historic) inventories and needs to be adjusted.
d lifo liquidation.