In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows: Select one: A. Cost of goods sold will be higher and ending inventory will be lower B. Cost of goods sold will be lower and ending inventory will be lower C. Cost of goods sold will be higher and ending inventory will be higher D. Cost of goods sold will be lower and ending inventory will be higher E. None of the above

Question

Amos

Business

17 July, 22:41

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows: Select one: A. Cost of goods sold will be higher and ending inventory will be lower B. Cost of goods sold will be lower and ending inventory will be lower C. Cost of goods sold will be higher and ending inventory will be higher D. Cost of goods sold will be lower and ending inventory will be higher E. None of the above

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Allisson Chung · Answer 1

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

Explanation:

If the price are falling means that:

price at moment n > price at n+k

because n+k is into the future, their cost is lower.

Using LIFO, means the COGS will use the lower price, and the Inventory the highest.

While FIFO will be the opposite. COGS will use the higher price and the Inventory the lower price.

COGS lifo < COGS fifo

Inventory lifo > Inventory fifo

Option D is the only one which satisfies this