Companies using LIFO are required to disclose the amount at which inventory would have been reported had the company used FIFO. The difference between LIFO and FIFO inventories is called the LIFO reserve.

Question

Companies using LIFO are required to disclose the amount at which inventory would have been reported had the company used FIFO.  The difference between LIFO and FIFO inventories is called the LIFO reserve.

BlackTom AI · Accepted Answer

The statement presents two parts to evaluate:

Option 1: The claim that companies using LIFO are required to disclose the amount at which inventory would have been reported had FIFO been used. In US GAAP, there is indeed a requirement to disclose the LIFO reserve, which is the difference between LIFO inventory and FIFO inventory. This disclosure is typically provided in the notes to the financial statements to help users understand the impact of using LIFO on reported inventory and cost of goods sold.

Option 2: The claim that the difference between LIFO and FIFO inventories is called the LIFO reserve. This is the standard terminology: the LIFO reserve (also called the LIFO liquidations or LIFO adjustment) represents the cumulative difference between inventory reported under LIFO and what would have been reported under FIFO.

To analyze the options:
- If the statement asserts True, it aligns with the conventional understanding that LIFO users must disclose the FIFO-equivalent inventory (the LIFO reserve) in the notes; the concept is widely recognized in accounting literature and practice.
- If the statement asserts False, it would be incorrect because the core idea—the existence of a disclosed LIFO reserve describing the FIFO-equivalent difference—is accurate, and the naming is standard.

In summary, the combined assertion is correct: LIFO users disclose the amount by which inventory would differ under FIFO, and that difference is called the LIFO reserve. The reasoning hinges on the established disclosure practices under US GAAP and the conventional definition of the LIFO reserve.

Companies using LIFO are required to disclose the amount at which inventory would have been reported had the company used FIFO. The difference between LIFO and FIFO inventories is called the LIFO reserve.

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