The inventory valuation method that results in the lowest taxable income in a period of inflation is:
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 assumes that the last units purchased are the first ones sold, which results in a higher Cost of Goods Sold (COGS) and a lower ending inventory value. Since COGS is deducted from revenue to calculate taxable income, LIFO results in the lowest taxable income in a period of inflation. Therefore, LIFO method is the best choice in this scenario.

The Inventory Valuation Method That Results in the Lowest Taxable