Companies using the LIFO method may encounter a liquidation of base period inventories at an interim date that is expected to be replaced by the end of the year. In these cases, cost of goods sold should be charged with the:
A) cost of the most recent purchases.
B) average cost of the liquidated LIFO base.
C) expected replacement cost of the liquidated LIFO base.
D) none of these.

Question

Quizplus · Accepted Answer

When companies using the LIFO method liquidate their base period inventories but expect to replace them by the end of the year, the cost of goods sold should be charged with the expected replacement cost of the liquidated LIFO base. This approach ensures that the financial statements reflect the anticipated cost of replenishing the inventory, providing a more accurate picture of the company's financial position and performance.

Companies Using the LIFO Method May Encounter a Liquidation of Base