Harmon Fraiser Industries had beginning inventory of 20,000 candles and an ending inventory of 15,000 candles. Harmon originally paid $1.80 each when it purchased the candles. The current replacement cost of the candles is $2.20 each. Each candle retails for $3.00. Harmon uses the LIFO method to account for its inventory. How did the LIFO liquidation affect the company's taxable income?

Question

Quizplus · Accepted Answer

Under LIFO, the last items purchased are the first to be sold. Since the ending inventory is lower than the beginning inventory, older, cheaper inventory was sold, leading to lower cost of goods sold and higher taxable income.

Harmon Fraiser Industries Had Beginning Inventory of 20,000 Candles and an Ending