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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

In rimes of rising prices, the inventory cost method that will yield the lowest net income is

  1. (a) FIFO.
  2. (b) weighted-average.
  3. (c) LIFO.
  4. (d) none of the above.

To determine

Indicate which inventory method will yield the lowest net income during a period of rising prices.

Explanation

Inventory costing methods: The costing method that is used to record the cost of goods sold and ending inventory in the financial statements is referred to as inventory costing method.

First-in First-Out method (FIFO): Under FIFO method, the cost of first acquired items is assigned to sales first. The value of the closing stock includes the cost of recently acquired items.

Last-In First-Out method (LIFO): Under LIFO methods, the cost of the items, which are purchased last, are assigned to sales first. The value of the closing stock includes the cost of first acquired items

Weighted-average cost method: Under average cost method inventories are priced at the average of all available inventories. Average cost is the quotient of total cost of goods available for sale and total units available for sale.

Indicate which inventory method will result the followings during a period of rising prices:

SectionDetailsJustification
(a)The highest cost of goods sold

In case of rising prices, the LIFO method produces the highest cost of goods sold...

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