The inventory valuation method that results in the lowest taxable income in a period of inflation is:
A) LIFO method.
B) FIFO method.
C) Specific identification method.
D) Weighted-average cost method.
E) Gross profit method.

Question

Quizplus · Accepted Answer

In a period of inflation, the cost of goods sold (COGS) increases, leading to a lower taxable income. This is because the inventory valuation methods assume that the goods sold are the ones purchased most recently. Therefore, under the Last-In, First-Out (LIFO) method, the cost of goods sold will be higher, and the ending inventory value will be lower compared to the First-In, First-Out (FIFO) method. This causes a greater reduction in taxable income, making LIFO the most suitable method for reducing taxes in periods of inflation.

The Inventory Valuation Method That Results in the Lowest Taxable