In a period of rising prices,the use of which of the following cost flow methods would result in the highest tax liability?
A)LIFO
B)FIFO
C)Weighted average cost
D)Moving average cost

Question

Quizplus · Accepted Answer

In a period of rising prices, the FIFO (First In, First Out) method would result in the highest tax liability because it assumes that the oldest inventory items are sold first. This means that the cost of goods sold (COGS) is based on the prices of the oldest inventory, which are lower in a period of rising prices. Consequently, the ending inventory is valued at higher current prices, leading to higher reported profits and thus higher tax liability compared to LIFO (Last In, First Out), weighted average cost, or moving average cost methods.

In a Period of Rising Prices,the Use of Which of the Following