Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items:
-Prices are declining; income taxes are higher with this method.
A)LIFO
B)FIFO

Question

Quizplus · Accepted Answer

LIFO achieves the effect of lower net income and higher income taxes when prices are declining. This is because LIFO assumes that the last units purchased are the first ones sold, leading to higher cost of goods sold and lower ending inventory value. As a result, the company reports lower profits, leading to higher income tax expense.

Identify Which Inventory Costing Method (LIFO or FIFO) Achieves the Effect