Lifo Reserve

I understand the adjustments on the balance sheet, but why does it increase Net Income?

In an inflationary environment, when a company uses LIFO, the more expensive goods are being placed in COGS. The adjustment to FIFO would put the lower cost goods in COGS which will increase NI. I think the adjustment is NI + change in LIFO reserve(1-tax).

It was in the mock exam. I think there was $150 in LIFO reserve, new NI was $87 (40% tax). I don’t remember anything about inflation… I will just assume that NI goes up (for Ratio questions). Thx.

Its just assumed that prices are always rising unless otherwise noted.