Question

which of the following statements is correct when inventory unit costs are decreasing? multiple choice lifo will result in lower net income and a higher inventory valuation than will fifo. fifo will result in higher net income and a higher inventory valuation than will lifo. fifo will result in higher net income and a lower inventory valuation than will lifo. lifo will result in higher net income and a higher inventory valuation than will fifo.

Answer 1

The correct statement is that FIFO results in higher net income and a higher inventory valuation than LIFO when inventory unit costs are decreasing, as FIFO assumes older, higher costs for COGS and leaves lower-cost items in inventory.

Step-by-step explanation:

When inventory unit costs are decreasing, the correct statement is: FIFO will result in higher net income and a higher inventory valuation than will LIFO. In a period of decreasing costs, the First-In, First-Out (FIFO) method assumes that the oldest inventory items are sold first, meaning that the cost of goods sold (COGS) reflects older, higher costs, and the remaining inventory is valued at the more recent, lower costs.

Conversely, the Last-In, First-Out (LIFO) method assumes that the most recently acquired items are sold first, so COGS reflects the lower recent costs, resulting in higher net income, and the inventory is valued using the older, higher costs, resulting in lower ending inventory valuation compared to FIFO.