7-65 (continued) 3. From Part 1, the beginning LIFO Reserve is 8, the difference between FIFO inventory of 40 and LIFO inventory of 32. At year end…

7-65 (continued) 3. From Part 1, the beginning LIFO Reserve is 8, the difference between FIFO inventory of 40 and LIFO inventory of 32. At year end the LIFO Reserve is 24, an increase of 16. This 16 is exactly the difference between FIFO cost of goods sold of 140 and LIFO cost of goods sold of 156. If prices are rising, cost of goods sold includes more of these recent higher costs under LIFO than under FIFO. Hence, if physical quantities are held constant, the LIFO reserve will rise by the difference between the cost of goods sold. Why?

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