In a period of increasing prices which inventory flow assumption will result in the lowest amount of income tax expense?
A) FIFO
B) LIFO
C) Average Cost
D) Income tax expense for the period will be the same under all assumptions.

Question

Quizplus · Accepted Answer

LIFO assumes that the most recently purchased inventory is sold first, resulting in the lowest value inventory remaining on hand, which in turn results in higher cost of goods sold and lower taxable income. This is especially beneficial during a period of increasing prices, where the cost of goods sold is highest under FIFO and lowest under LIFO.

In a Period of Increasing Prices Which Inventory Flow Assumption