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Question:

Gordon, Inc., reports using the LIFO cost method. In notes to its financial statements, Gordon discloses inventory of 500 units in 20X1 and 510 units in 20X2 and states a LIFO reserve of $50,000 in 20X1 and $48,000 in 20X2. These inventory disclosures most likely reflect:

A decreasing prices.
Explaination

Decreasing prices can cause the LIFO reserve to decrease even when the inventory quantity is stable or increasing. A LIFO liquidation is a decrease in the quantity of inventory. To look for an indication of decreasing demand, an analyst would compare the growth rates of inventories and sales.