Comparing Inventory Methods

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

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

1. FIFO inventory		LIFO inventory
2. FIFO cost of goods sold		LIFO cost of goods sold
3. FIFO net income		LIFO net income
4. FIFO income taxes		LIFO income taxes

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

1. Income shown on the companys tax return would be lower if LIFO rather than FIFO is used.
2. Income shown on the companys tax return would be higher if LIFO rather than FIFO is used.
3. Cost of goods sold shown on the companys income statement would be lower if LIFO rather than FIFO is used.
4. Dividends shown on the companys financial statements would be higher if LIFO rather than FIFO is used.