Questions: When purchase costs are (rising/declining) income. FIFO will report the lowest cost of goods sold yielding the highest gross profit and ne

To answer the fill-in-the-blank question, we need to understand the context of inventory costing methods, specifically FIFO (First-In, First-Out), and how they affect financial statements when purchase costs are changing.

1. Understanding FIFO: FIFO assumes that the oldest inventory items are sold first. Therefore, in periods of rising costs, the older, cheaper costs are matched against current revenues, resulting in lower cost of goods sold (COGS) and higher gross profit and net income.

2. Context of Rising or Declining Costs:

   • Rising Costs: When purchase costs are rising, FIFO will report the lowest cost of goods sold, yielding the highest gross profit and net income.
   • Declining Costs: Conversely, if costs are declining, FIFO would report higher COGS, resulting in lower gross profit and net income.

3. Answering the Question:

   • The first blank should be filled with "rising" because the question is asking about the scenario where FIFO reports the lowest COGS and highest profits, which occurs when costs are rising.

Therefore, the completed sentence should read: "When purchase costs are rising, FIFO will report the lowest cost of goods sold yielding the highest gross profit and net income."

In summary, the answer is:

• The first blank: "rising"