Assuming sales hold steady, which of the following actions would result in lowering income taxes for a company that uses the LIFO inventory method?
A) Increasing sales prices
B) Buying extra inventory at the end of the year in an inflationary environment
C) Allowing the inventory quantity at year end to fall below beginning year levels
D) None of these. All would cause increasing taxes

Question

Quizplus · Accepted Answer

LIFO transfers the cost of the most recent purchases to cost of goods sold. These recent purchases are likely to be higher than the cost of earlier purchases, causing income taxes to be lower. Buying extra inventory at year end with a higher cost would cause a lowering of taxes since these units would be part of cost of goods sold.

Assuming Sales Hold Steady, Which of the Following Actions Would