Which of the following statements is/are true?
A) In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.
B) In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method.
C) In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO.
D) All of the other answer choices are true.

Question

Quizplus · Accepted Answer

In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method. This is because under FIFO, the older, lower cost inventory is sold first, resulting in a lower cost of goods sold and higher reported net income. Additionally, LIFO results in a higher cost of goods sold and lower reported net income due to the selling of newer, higher cost inventory first. In contrast, in a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO.

Which of the Following Statements Is/are True