Question

1. In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?

A. Average cost method

B. FIFO method

C. LIFO method

D. Need more information to answer

2. In a period of rising prices, which of the following inventory methods generally results in the lowest cost of goods sold figure?

A. LIFO method

B. FIFO method

C. Need more information to answer

D. Average cost method

3. In a period of rising prices, which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?                                                                           

A. FIFO

B. Perpetual method

C. Average cost method

D. LIFO

Answer 1

Part 1)

The correct answer is

C) LIFO method

Explanation

In the event of rising price, the highest cost of goods sold is in LIFO inventory due to which their is lowest net income.

Part 2)

The correct answer is

B) FIFO method

In the event of rising inventory highest ending inventory is in FIFO due to which less cost of goods sold is in income statement due to which it results in highest net income.

Part 3)

The correct answer is

A) FIFO

Explanation

In FIFO method the recent puchased goods are part of ending inventory, so it means cost allocated to ending inventory will actually be its current cost.