Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Financial Statement Effects of Inventory Costing Methods

Financial Accounting

5. Inventory

Financial Statement Effects of Inventory Costing Methods

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Multiple Choice

Which of the following statements best describes the effect of using the LIFO inventory costing method during periods of rising prices?

LIFO results in lower cost of goods sold and higher net income compared to FIFO.

LIFO results in higher cost of goods sold and lower net income compared to FIFO.

LIFO results in higher ending inventory values than FIFO during periods of rising prices.

LIFO and FIFO produce the same net income during periods of rising prices.

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Verified step by step guidance

Understand the concept of LIFO (Last-In, First-Out) inventory costing method: Under LIFO, the most recent inventory purchases (last-in) are assumed to be sold first, leaving older inventory costs in ending inventory.

Understand the concept of FIFO (First-In, First-Out) inventory costing method: Under FIFO, the oldest inventory purchases (first-in) are assumed to be sold first, leaving newer inventory costs in ending inventory.

Analyze the impact of rising prices on LIFO: During periods of rising prices, the most recent inventory costs (higher costs) are matched to cost of goods sold under LIFO, resulting in higher cost of goods sold.

Analyze the impact of rising prices on net income under LIFO: Since cost of goods sold is higher under LIFO during rising prices, net income will be lower compared to FIFO, which uses older (lower) costs for cost of goods sold.

Compare ending inventory values under LIFO and FIFO: Under LIFO, older (lower) costs remain in ending inventory, resulting in lower ending inventory values compared to FIFO, which retains newer (higher) costs in ending inventory during rising prices.