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

Question

Quizplus · Accepted Answer

LIFO method (last-in, first-out) assumes that the goods sold are the ones that were most recently purchased or produced, so the cost of goods sold is based on the higher prices of more recently bought goods. This results in a higher cost of goods sold and lower ending inventory, which in turn leads to a lower taxable income. Therefore, LIFO is the best choice in a period of inflation.

The Inventory Valuation Method That Results in the Lowest Taxable