Question

Jefferson Corp. decided to change its inventory valuation method from first in, first out (FIFO) to last in, first out (LIFO) in a period of rising prices. What was the result of the change for the ending inventory and net income?

a. Increases
b. Decreases

Answer 1

decreases

Step-by-step explanation:

LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold.

FIFO means first in, first out. It means that it is the first purchased inventory that is the first to be sold

In a period of rising prices, changing from FIFO to LIFO means that the latest purchased goods would be of higher prices than the older goods. This would increase cost of goods sold and reduce net income.

Also, ending inventory would consist of older goods purchased at lower prices

Both net income and ending inventory would decrease