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Comparing inventory methods Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results. A. In each space that follows, place the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices. B. Why would management prefer to use LIFO over FIFO in periods of rising prices?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 6, Problem 14E
Textbook Problem
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Comparing inventory methods

Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results.

  1. A. In each space that follows, place the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices.

Chapter 6, Problem 14E, Comparing inventory methods Assume that a firm separately determined inventory under FIFO and LIFO

  1. B. Why would management prefer to use LIFO over FIFO in periods of rising prices?

(a)

To determine

Place correct signs for each of the following comparisons assuming in the period of rising prices.

Explanation of Solution

Comparing inventory methods:

The cost flow is different for different methods of valuation of inventory like LIFO, FIFO and weighted average inventory method. Therefore, the three methods result in different ending inventory value, cost of merchandise sold, net income and gross profit.

During the period of rising prices, the LIFO method matches the cost against sales on the income statement of the company. As the costs are higher in period of rising prices, the cost nearly matches with the revenues of the company. Therefore the net income under LIFO will be lesser...

(b)

To determine

Discuss the reason that LIFO method that would be preferred than FIFO method by the company in the period of rising prices.

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Chapter 6 Solutions

Financial And Managerial Accounting
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