During deflation and decreasing inventory

问题单项选择题

During deflation and decreasing inventory quantities, a company using LIFO rather than FIFO. What is the effect on cost of goods sold and cash flows Cost of Good Sold Cash Flow（）①A. lower lower ②B. higher lower ③C. lower higher.

A. ①

B. ②

C. ③

答案

参考答案：A

解析：

In this situation, LIFO results in lower cost of goods sold because it uses the more recent and lower costs than LIFO. LIFO results in lower cash flows because the cash on income taxes is a percentage(the marginal tax rate) of the difference in inventory values. Thus, with LIFO: Sales -COGS (smaller) EBT (larger) -Taxes (larger) Because taxes paid out are a cash outflow. EAT (larger) If taxes are larger, then cash flow ill be smaller.