Question

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows: Question 14 options: a) Cost of goods sold will be higher and ending inventory will be lower b) Cost of goods sold will be higher and ending inventory will be higher c) Cost of goods sold will be lower and ending inventory will be higher d) Cost of goods sold will be lower and ending inventory will be lower

Answer 1

C. Cost of goods sold will be lower and ending inventory will be higher.

Step-by-step explanation:

Last-in-first-out (LIFO) gives assumption that the most recent inventory purchases are sold first. First-in-first-out (FIFO) gives assumption that the oldest inventory purchases are sold first. In times of falling prices, LIFO will assume they sell those inventories that are more recent first, bringing about a lower cost of goods sold number. Then inventory purchases that are older will then remain in ending inventory causing the ending inventory to be higher under LIFO