Question

It is argued that LIFO should not be allowed to compute net income because a. it does not match costs to revenues, especially when there is inflation in the economy. b. it overstates balance sheet inventory. c. it understates cost of goods sold when prices are rising and therefore makes US companies' results look better than foreign companies' results which can only use FIFO. d. it causes profits to be understated when prices are rising and allows a company to dodge taxes.

Answer 1

Answer:

d. it causes profits to be understated when prices are rising and allows a company to dodge taxes.

Explanation:

The LIFO method should not be permitted to determine the net income as in this case the profits would be understated at the time when price is increased due to this it permits the company to dodge taxes as the inventory consumed in the production process also the high inventory value would be involved in the cost of sales that represent the high cost, this result in lower profits and taxes

Hence, the option d is correct