FIFO reports higher gross profit and net income than the LIFO method when
A) prices are increasing
B) prices are decreasing
C) prices remain stable
D) prices are reduced by 50%

Question

FIFO reports higher gross profit and net income than the LIFO method when ​
A) ​prices are increasing
B) ​prices are decreasing
C) ​prices remain stable
D) ​prices are reduced by 50%

Quizplus · Accepted Answer

FIFO assumes that goods sold are the oldest ones in inventory, and in a period of rising prices, the cost of goods sold will be lower under FIFO compared to LIFO. This results in higher gross profit and net income under FIFO. Therefore, A is the correct choice.

FIFO Reports Higher Gross Profit and Net Income Than the LIFO