The inventory valuation method that results in the highest taxable income in a period of inflation is the:
A)LIFO method.
B)FIFO method.
C)Weighted-average cost method.
D)Specific identification method.
E)Gross profit method.

Question

Quizplus · Accepted Answer

In a period of inflation, the FIFO method will result in the highest taxable income because it assumes that the older, lower-cost inventory items are sold before the newer, higher-cost items. As prices increase, this leads to a higher cost of goods sold and therefore higher taxable income. The LIFO method, on the other hand, will result in a lower cost of goods sold and lower taxable income in a period of inflation, as it assumes the newer, higher-cost inventory items are sold first.

The Inventory Valuation Method That Results in the Highest Taxable