In a period of rising prices, the inventory method which tends to give the highest reported net income is
A) moving-average.
B) first-in, first-out.
C) specific identification.
D) weighted-average.

Question

Quizplus · Accepted Answer

In a period of rising prices, the FIFO (first-in, first-out) inventory method tends to give the highest reported net income. This is because the cost of goods sold will be based on the lower, older costs of inventory, while the ending inventory will be valued at current, higher prices. The result is a larger gross profit and higher net income.

In a Period of Rising Prices, the Inventory Method Which