During the past year prices have been steadily falling Requi

During the past year, prices have been steadily falling Required: For each of the following three items, determine which inventory cost fnlow assumption, FIFO or LIFO, will result in the higher value If neither applies, select Value not affected\" Value not affected FIFO LIFO ncome Tax Expense Gross Pr Sales

Solution

First let us understand the scenario.

During declining prices, FIFO will have the current stock which is of low value. LIFO will have old stock which is of higher prices.

Now impact on each of the following

Income tax expenses - LIFO

Because with LIFO stock which is oh higher price, closing stock will increase gross profit which increases tax.

Gross profit - LIFO

Because with LIFO stock which is oh higher price, closing stock will increase gross profit.

Sales - Value not affected

Because inventory valuation method does not impacts it.