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Which method would likely show higher ending inventory values during inflationar

Practice Questions

Q1
Which method would likely show higher ending inventory values during inflationary periods?
  1. FIFO
  2. LIFO
  3. Weighted Average
  4. Specific Identification

Questions & Step-by-Step Solutions

Which method would likely show higher ending inventory values during inflationary periods?
  • Step 1: Understand what FIFO means. FIFO stands for 'First In, First Out'. This means that the oldest inventory items are sold first.
  • Step 2: Recognize what happens during inflation. Inflation means that prices are rising over time.
  • Step 3: Know how FIFO affects inventory valuation. Under FIFO, the inventory that remains unsold is valued at the most recent (higher) prices.
  • Step 4: Compare FIFO with other methods. Other methods, like LIFO (Last In, First Out), would use older (lower) prices for the remaining inventory.
  • Step 5: Conclude that during inflation, FIFO will show higher ending inventory values because it uses the latest costs for unsold items.
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