Which of the following will occur when inventory costs are decreasing?

Question

Quizplus · Accepted Answer

When inventory costs are decreasing, FIFO (First In, First Out) will result in higher net income and higher ending inventory compared to LIFO (Last In, First Out), because the older, cheaper goods are being sold first, leaving the newer, more expensive goods in inventory. This makes choice B incorrect as stated, and the correct understanding is actually the opposite of what B suggests. Therefore, there seems to be a misunderstanding in the explanation provided. The correct explanation should highlight that under decreasing costs, LIFO will result in higher net income and higher ending inventory compared to FIFO, because LIFO would sell off the newer, cheaper goods first, leaving the older, more expensive goods in inventory. However, given the options and the typical outcomes of LIFO and FIFO under decreasing costs, none of the options directly align with the standard accounting outcomes. The correct interpretation based on standard outcomes would be that LIFO leads to higher net income and ending inventory values compared to FIFO in a decreasing cost environment, which is not explicitly stated in the options provided.

Which of the Following Will Occur When Inventory Costs Are