Chapter 13, Problem 5RQ

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

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

# In a period of rising prices, which inventory method will result in: (a) the highest cost of goods sold? (b) the lowest cost of goods sold? (c) the highest ending inventory? (d) the lowest ending inventory? (e) the highest gross profit? (f) the lowest gross profit?

To determine

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

1. (a) Highest cost of goods sold,
2. (b) Lowest cost of goods sold,
3. (c) highest ending inventory,
4. (d) Lowest ending inventory,
5. (e) Highest gross profit and
6. (f) Lowest gross profit.
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

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

 Section Details Justification (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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