In a period of rising prices, which inventory valuation method results in the highest Net Income and the highest Ending Inventory?

Answer options:

LIFO

FIFO

Weighted Average

Moving Average

How to approach this question

Rising Prices + FIFO = Low COGS (Old prices) -> High Income -> High Inventory (New prices). Rising Prices + LIFO = High COGS (New prices) -> Low Income -> Low Inventory (Old prices).

Full Answer

B.FIFO✓ Correct

Under FIFO, the oldest costs (lowest in inflation) are expensed to COGS, maximizing Net Income. The newest costs (highest) remain in Ending Inventory.

Common mistakes

Confusing the impact on COGS vs Inventory.

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