Which inventory costing method would result in the highest total assets reported on the balance sheet during a period of rising prices?

• A. Weighted Average Cost
• B. FIFO (First-In, First-Out)
• C. LIFO (Last-In, First-Out)
• D. Specific Identification

Answer: (B)

Verified step by step guidance

1. Understand the inventory costing methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), Weighted Average Cost, and Specific Identification. Each method determines how inventory costs are assigned to cost of goods sold (COGS) and ending inventory.
2. Recognize the impact of rising prices on inventory valuation. During a period of rising prices, the cost of goods purchased later will be higher than those purchased earlier.
3. Analyze FIFO (First-In, First-Out): Under FIFO, the oldest inventory costs are assigned to COGS, leaving the most recent (and higher-cost) inventory in ending inventory. This results in higher total assets reported on the balance sheet.
4. Compare LIFO (Last-In, First-Out): Under LIFO, the newest inventory costs are assigned to COGS, leaving the older (and lower-cost) inventory in ending inventory. This results in lower total assets reported on the balance sheet during rising prices.
5. Evaluate Weighted Average Cost and Specific Identification: Weighted Average Cost averages all inventory costs, which may result in a middle-ground valuation. Specific Identification assigns costs based on the actual items sold, which depends on the specific inventory mix. Neither method consistently results in the highest total assets during rising prices.