In a period of rising prices FIFO will have
A) lower net income than LIFO.
B) lower cost of goods sold than LIFO.
C) lower income tax expense than LIFO.
D) lower net purchases than LIFO.

Question

Quizplus · Accepted Answer

In a period of rising prices, FIFO (First-in First-out) will have a higher cost of goods sold because it assumes that the oldest inventory items have been sold first. This means that the cost of goods sold will reflect the higher current prices of the most recent inventory purchases, resulting in a lower net income than LIFO (Last-in First-out). However, it will have a lower income tax expense than LIFO because of the lower net income. Lower net purchases than LIFO is not necessarily true and cannot be concluded based on the given information.

In a Period of Rising Prices FIFO Will Have