Final answer:
In a period of falling prices, the least likely scenario is that the COGS is lower under LIFO. With LIFO, during falling prices, more expensive, older inventory is retained, leading to a higher COGS. Option d is correct.
Step-by-step explanation:
In a period of falling prices and stable inventory quantities, the statement that is least likely is: d) The cost of goods sold (COGS) is lower under LIFO.
LIFO, or Last-In, First-Out, assumes that the most recently acquired items are sold first. During a period of falling prices, the newest, cheaper items would be sold first, resulting in a lower COGS compared to FIFO (First-In, First-Out), where the older, more expensive items would be sold first leading to a higher COGS.
Therefore, under LIFO, with decreasing prices, you would expect:
- a) The current ratio is higher under LIFO, because the inventory value will be lower, and if the inventory portion is relatively small compared to other current assets, this will cause the current ratio to increase.
- b) Solvency ratios are higher under LIFO, as these ratios often measure the ability to cover long-term obligations and a lower inventory valuation can result in lower liabilities on the balance sheet.
- c) The inventory turnover ratio is lower under LIFO, as the cost recognized for inventory sold would be lower, thus increasing the turnover period.