This inventory method produces the lowest income tax during a period of inflation.

Question

Quizplus · Accepted Answer

LIFO (last-in, first-out) assumes that the cost of the most recently purchased items are the first to be sold, resulting in a higher cost of goods sold and therefore lower net income. This lower net income results in lower income tax during a period of inflation, as the lower net income reflects the higher value of inventory on the balance sheet. Therefore, LIFO is the best choice for producing the lowest income tax during a period of inflation.

This Inventory Method Produces the Lowest Income Tax During a Period