What happens to net income using LIFO when inventory costs are rising?

When inventory costs are rising, using the Last-In, First-Out (LIFO) inventory valuation method results in lower net income. This occurs because LIFO assumes that the most recently acquired inventory costs are the first to be sold. In an environment of rising costs, this means that the cost of goods sold reflects the higher contemporary prices, thus increasing expenses.

As expenses rise, the profitability of the company appears diminished, leading to a decrease in net income. In contrast, if a company were using First-In, First-Out (FIFO) during a period of inflation, it would sell older, cheaper inventory first, resulting in lower expenses and potentially higher net income. Therefore, with LIFO and increasing costs, the effect on net income is a decrease, aligning with the correct answer.