Question

When prices are falling, LIFO will result in: Multiple Choice higher income and a higher inventory valuation than will FIFO. lower income and a higher inventory valuation than will FIFO. lower income and a lower inventory valuation than will FIFO. higher income and a lower inventory valuation than will FIFO.

Answer 1

When prices are falling, LIFO will result in lower income and a lower inventory valuation than will FIFO.

Step-by-step explanation:

When prices are falling, LIFO (Last-In, First-Out) will result in lower income and a lower inventory valuation than will FIFO (First-In, First-Out).

LIFO assumes that the most recent inventory items are sold first, which means that the cost of goods sold (COGS) will be based on the higher costs of the more recently purchased inventory items. As prices are falling, this will result in a higher COGS and therefore lower income.

In addition, LIFO will result in a lower inventory valuation because the inventory on the balance sheet will be based on the older, lower-cost inventory items that are still in stock.

Answer 2

When prices are falling, LIFO will result in lower income and a lower inventory valuation than FIFO.

Step-by-step explanation:

When prices are falling, LIFO (Last-In, First-Out) will result in lower income and a lower inventory valuation than FIFO (First-In, First-Out).

LIFO assumes that the most recently acquired items are sold first, which means that the cost of goods sold will include the higher-cost items. As prices are falling, this will result in a higher cost of goods sold and therefore lower income. Additionally, LIFO will result in a lower inventory valuation because the older, lower-cost items are not reflected in the ending inventory.