Which of the four inventory cost flow assumptions transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?
A) LIFO.
B) FIFO.
C) Average.
D) Specific identification.

Question

Quizplus · Accepted Answer

LIFO (Last In, First Out) method assumes that the most recently purchased items are sold first, which means the cost of goods sold will reflect the most recent purchase cost. The remaining items in inventory are valued at the oldest acquisition costs, which are assumed to be lower. Therefore, LIFO will transfer the most recent purchase cost to the cost of goods sold, resulting in a lower net income and a lower tax liability. This method is suitable for companies that experience rising costs of inventory over time or inflation.

Which of the Four Inventory Cost Flow Assumptions Transfers the Most