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Under the perpetual system with rising costs, FIFO cost of sales was $85 and LIFO cost of sales was $98 for the same 19 units. What is the $13 difference attributable to?
AA difference in total sales revenue between the methods
BA difference in the number of units sold under each method
CFIFO holding that $13 in ending inventory while LIFO expenses it
DLIFO holding that $13 in ending inventory while FIFO expenses it
Answer & Solution
Correct answer: C. FIFO holding that $13 in ending inventory while LIFO expenses it
1. Both methods sold 19 units with identical sales of $\$190$, so revenue is not the cause.
2. Cost of sales differs by $\$98 - \$85 = \$13$.
3. When costs are rising, FIFO leaves the costlier recent units in ending inventory, so it carries the $\$13$ there.
4. LIFO instead expenses those costlier units, treating the $\$13$ as part of cost of merchandise sold.
5. Rule out option D, which reverses the rising-cost pattern.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.1.1 "Perpetual Inventory System", p.119_
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