HH Company uses LIFO.HH disclosed that if FIFO had been used,inventory at the end of 2016 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2015.Assuming HH has a 30% income tax rate:
A)Its reported cost of goods for 2016 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods for 2016 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.
C)Its reported cost of goods sold for 2016 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported cost of goods sold for 2016 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

Question

Quizplus · Accepted Answer

If the end-of-2016 inventory under FIFO would be $20 million lower than under LIFO, this means that the cost of goods sold under FIFO would have been $20 million higher than under LIFO. Therefore, if HH had used FIFO instead of LIFO, its reported cost of goods sold for 2016 would have been $20 million higher. The question asks for the reported cost of goods sold, not for tax savings, so we are not looking for after-tax amounts. Answer choice D is the best choice.

HH Company Uses LIFO