The use of the LIFO inventory method for tax purposes:
A)Will not defer income if the prices are increasing and quantities of inventories are decreasing.
B)Is required for tax purposes if the taxpayer uses the LIFO method for reporting to stockholders and creditors.
C)Will result in a recapture of deferred income if the quantities of inventories decrease.
D)Does not affect the company's financial accounting for inventories and cost of goods sold.
E)None of the above.

Question

Quizplus · Accepted Answer

Using LIFO can defer income taxes when prices are rising, but if inventory quantities decrease, the deferred income may be recaptured, leading to higher taxable income.

The Use of the LIFO Inventory Method for Tax Purposes