Consistent with positive accounting theory,an entity close to breaching their debt covenant will:
A) prefer LIFO method over FIFO method.
B) prefer FIFO method over LIFO method.
C) prefer weighted average method over FIFO method.
D) prefer moving average method over FIFO method.

Question

Quizplus · Accepted Answer

Positive accounting theory suggests that firms close to violating debt covenants may prefer accounting methods that report higher income. The FIFO method typically results in higher reported income than LIFO during periods of rising prices, as older, cheaper costs are matched against current revenues.

Consistent with Positive Accounting Theory,an Entity Close to Breaching Their