Of the three cost-flow assumptions, when prices rise FIFO results in balance sheet figures that are _____, cost of goods sold will _____, and _____ reported net income
A)closest to current cost, be out of date, highest
B)out of date, closest to current cost, highest
C)closest to current cost, be out of date, lowest
D)out of date, closest to current cost, lowest
E)closest to current cost, closest to current cost, highest

Question

Quizplus · Accepted Answer

Under FIFO (First-In, First-Out) when prices rise, the balance sheet figures (inventory) are closest to current cost because the most recently purchased items remain in inventory. The cost of goods sold will be based on the older, cheaper goods, making it out of date. This results in the highest reported net income because the older, lower-cost goods are being sold first, reducing the cost of goods sold and increasing net income.

Of the Three Cost-Flow Assumptions, When Prices Rise FIFO Results