Which of the following statements is correct when inventory unit costs are increasing?
A)LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B)LIFO will result in higher net income and lower inventory valuation than will FIFO.
C)FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D)FIFO will result in higher net income and a higher inventory valuation than will LIFO.

Question

Quizplus · Accepted Answer

When inventory unit costs are increasing, FIFO (First In, First Out) accounting will result in higher net income because the older, cheaper goods are recorded as sold first, leaving the more expensive, recent purchases in inventory. This leads to a higher ending inventory valuation and higher net income due to lower cost of goods sold compared to LIFO (Last In, First Out), where the most recently purchased, more expensive inventory is sold first, resulting in higher cost of goods sold and lower net income.

Which of the Following Statements Is Correct When Inventory Unit