A company's liquidation of inventory under LIFO results in higher income during periods of rising costs. Management can manipulate earnings by delaying purchases until after the end of the fiscal year.

Question

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Liquidation of inventory under LIFO results in selling the older, cheaper inventory first which leads to higher cost of goods sold and consequently higher income during periods of rising costs. Management can manipulate earnings by delaying purchases until after the end of the fiscal year and reducing the cost of goods sold.

A Company's Liquidation of Inventory Under LIFO Results in Higher