Oliver & Co.has been in business for 15 years.During that time,the company has consistently used the LIFO inventory costing method.Because of inflation,purchase prices for merchandise have increased consistently over the 15 years.The company has maintained the same inventory quantities over the 15 years.What is the effect of this accounting choice?

Question

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Using the LIFO (Last In, First Out) method during periods of inflation means that the cost of goods sold reflects the most recent, higher purchase prices, while the older, lower-cost items remain in inventory. This results in lower reported net income and lower ending inventory values on the balance sheet, as the inventory is valued at older, lower costs. Therefore, the ending inventory amount reported on the balance sheet may be significantly lower than its current replacement value.