Question

LIFO produces numbers that are either the highest or the lowest in which of the following:

1) E/I
2) COGS
3) NI

Answer 1

The LIFO method often results in the lowest ending inventory and net income, and higher COGS, especially in a scenario where prices are rising.

Step-by-step explanation:

The question is evaluating accounting methods and their impact on certain financial metrics. Specifically, it asks whether the Last-In, First-Out (LIFO) inventory valuation method typically produces the highest or lowest numbers for ending inventory (E/I), cost of goods sold (COGS), and net income (NI).

When prices are rising, LIFO typically results in a lower ending inventory value and higher COGS compared to other inventory methods such as First-In, First-Out (FIFO). This is because LIFO counts the most recently acquired inventory as sold first, which is usually more expensive in an inflationary environment. Consequently, this leads to a lower reported net income due to higher COGS.

Thus, to answer the student's question:

• LIFO typically produces the lowest ending inventory.
• LIFO results in higher COGS compared to FIFO.
• LIFO generally leads to the lowest net income.