Can somebody please explain what this is asking? I do not understand any of this.
A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that :
A. all sales were from beginning inventory.
B. sales were from current production until current production was depleted, and then use sales from beginning inventory.
C. all sales were from current production.
D. all sales were for cash.
LIFO means last in, first out. When merchandise is sold from inventory, it is the last one added to the inventory.
Check this site to find the best answer to this question.
http://financial-education.com/2007/03/05/inventory-accounting-methods-lifo-fifo-weighted-average-and-specific-identification/
This question is asking about the assumptions made by a firm that uses LIFO (Last-In, First-Out) inventory accounting when calculating gross profits. LIFO is an accounting method that assumes the most recently acquired inventory is sold first.
To answer this question, you need to understand how LIFO works. When using LIFO, a firm assumes that the sales made were either from the current production or from the inventory that was most recently acquired.
Let's break down the options:
A. "All sales were from beginning inventory": This option assumes that all sales made were from the inventory that was available at the start of the accounting period. This is not consistent with the LIFO method, so it is not the correct answer.
B. "Sales were from current production until current production was depleted, and then use sales from beginning inventory": This option aligns with the LIFO assumption. It suggests that sales are made from the current production until it is exhausted, and then any additional sales come from the inventory that was acquired earlier. This is the correct answer.
C. "All sales were from current production": This option assumes that all sales made were from the current production and does not consider inventory acquired earlier. This is not consistent with the LIFO method.
D. "All sales were for cash": This option refers to the method of payment for sales, not the inventory accounting method. It is not relevant to this question.
To summarize, the correct answer is B. A firm using LIFO accounting assumes that sales are made from the current production until it is depleted, and then sales are made from the inventory that was acquired earlier.