(p.507.)If the economy began experiencing a prolonged period of deflation in which the costs of most goods were actually falling,many firms would find that the LIFO method of inventory valuation would result in higher reported profits.

Question

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When prices are falling, LIFO results in higher reported profits because the cost of goods sold is based on the most recent purchases, which are at lower prices. This results in a lower cost of goods sold and higher reported profits.

(P507)If the Economy Began Experiencing a Prolonged Period of Deflation