In times of rising prices, inventory profits $($or phantom profits$)$ occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of older,

lower costs to the income statement results in higher profits than if current costs were to be recognized. How does this create a problem for the reporting

company?

Lower cost meahs higher taxable income and higher taxes payable.

Lower cost means lower net income and lower retained earnings.

Lower cost means lower taxable income and lower taxes payable.

Lower cost means higher net income and higher retained earnings.