Is your friend correct in his assertion that by using LIFO, ford was able to report lower profits in 2006?
Yes. If ford had used FIFO instead of LIFO for its LIFO inventories, income before taxes in all prior years, including 2006, would have been higher by $1,015 million (the increase in 2006 ending inventory). In 2006, alone, income before taxes would have been higher by $6 million. Here's why. The increase in ending inventory of $1,015 million decreases cost of goods sold, but the increase in beginning inventory of $1,009 million increases cost of goods sold, resulting in a net decrease in cost of goods sold of $6 million