Question

Which of the following statements is not true as it relates to the dollar-value LIFO inventory method?

1) The dollar-value LIFO method assumes that the most recent inventory purchases are the first to be sold.
2) The dollar-value LIFO method is used to account for changes in the prices of inventory items.
3) The dollar-value LIFO method results in a higher cost of goods sold during periods of rising prices.
4) The dollar-value LIFO method is not allowed under generally accepted accounting principles (GAAP).

Answer 1

The dollar-value LIFO inventory method does not account for changes in the prices of inventory items, but rather changes in the dollar value of a particular group of inventory items. It assumes that the most recent inventory purchases are the first to be sold and results in a higher cost of goods sold during periods of rising prices. The dollar-value LIFO method is allowed under GAAP.

Step-by-step explanation:

The dollar-value LIFO inventory method is used to account for changes in the prices of inventory items. This statement is not true. The dollar-value LIFO method does not account for changes in the prices of inventory items, but rather the changes in the dollar value of a particular group of inventory items.

The dollar-value LIFO method assumes that the most recent inventory purchases are the first to be sold. This assumption allows for the inventory to be valued at current replacement cost.

During periods of rising prices, the dollar-value LIFO method results in a higher cost of goods sold. This is because the most recent purchases are valued at the higher replacement cost, which increases the cost of goods sold.

The dollar-value LIFO method is allowed under generally accepted accounting principles (GAAP), so statement 4) is also not true.