Final answer:
Under LIFO, when prices rise, the cost of goods sold consists of more expensive, recently purchased inventory, reducing COGS and increasing net income and ending inventory value.
Step-by-step explanation:
The cost flow assumption that reports the highest net income and highest ending inventory (EI) when prices of merchandise for a firm to purchase are increasing is the Last-In, First-Out (LIFO) method. Under LIFO, when prices are rising, the cost of goods sold consists of the most recently purchased inventory, which is more expensive. This results in a lower cost of goods sold (COGS), and higher net income, and the remaining older, less expensive inventory reflects a higher year-end inventory value. However, a key note to remember is that in some tax jurisdictions, when the LIFO assumption is applied for tax reporting, firms also must use LIFO for financial reporting (conformity rule).