b. Why would management prefer to use LIFO over FIFO in periods of rising prices? 1. Income shown on the company's tax return would be lower if LIFO rather than FIFO is used. 2. Income shown on the company's tax return would be higher if LIFO rather than FIFO is used. 3. Cost of goods sold shown on the company's income statement would be lower if LIFO rather than FIFO is used. 4. Dividends shown on the company's financial statements would be higher if LIFO rather than FIFO is used. Feedback 7 Check My Work Recall that FIFO reports higher gross profit, net income, and income taxes than the LIFO method when costs (prices) are increasing. Also, rising prices mean that items purchased later will cost more than items purchased earlier. Since FIFO ending inventory costs for the period are calculated based on the most recent prices, consider this cost flow in your answer regarding both inventory and cost of goods sold