The inventory valuation method that results in the lowest taxable income in a period of rising costs 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 (last in, first out) method assumes that the most recent inventory purchases are sold first, thereby assigning the highest cost of goods sold to the current period, resulting in the lowest taxable income during a period of rising costs. This is because the older, lower-cost inventory remains on the balance sheet, which is valued at an earlier cost basis. Therefore, LIFO is the best choice to minimize tax liability during inflationary periods.

The Inventory Valuation Method That Results in the Lowest Taxable