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In a period of deflation, which inventory method would likely yield a higher end
In a period of deflation, which inventory method would likely yield a higher ending inventory value?
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Q1
In a period of deflation, which inventory method would likely yield a higher ending inventory value?
FIFO
LIFO
Weighted Average
None of the above
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In a period of deflation, FIFO would likely yield a higher ending inventory value as it uses the cost of older, cheaper inventory.
Questions & Step-by-step Solutions
1 item
Q
Q: In a period of deflation, which inventory method would likely yield a higher ending inventory value?
Solution:
In a period of deflation, FIFO would likely yield a higher ending inventory value as it uses the cost of older, cheaper inventory.
Steps: 5
Show Steps
Step 1: Understand what deflation means. Deflation is when prices of goods and services decrease over time.
Step 2: Learn about inventory methods. FIFO stands for 'First In, First Out', meaning the oldest inventory is sold first.
Step 3: Recognize that in deflation, older inventory costs less than newer inventory.
Step 4: Realize that using FIFO means the company will account for the cheaper, older inventory first.
Step 5: Conclude that since FIFO uses the lower costs of older inventory, it will result in a higher ending inventory value during deflation.
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