Baker Company has been using the LIFO method of inventory valuation for 10 years, since it began operations.Its 2007 ending inventory was $40,000, but it would have been $60,000 if FIFO had been used.Thus, if FIFO had been used, Baker's income before income taxes would have been
A)$20,000 greater over the 10-year period.
B)$20,000 less over the 10-year period.
C)$20,000 greater in 2007.
D)$20,000 less in 2007.

Question

Quizplus · Accepted Answer

LIFO results in lower ending inventory and higher cost of goods sold than FIFO. Therefore, if FIFO had been used, Baker's income before income taxes would have been $20,000 greater over the 10-year period.

Baker Company Has Been Using the LIFO Method of Inventory