In a period of rising prices, which inventory valuation method (LIFO or FIFO) tends to result...
In a period of rising prices, which inventory valuation method (LIFO or FIFO) tends to result in the following?
a. Highest cost of goods sold
b. Lowest inventory valuation
c. Highest income taxes
Homework Answers
In FIFO method, the goods which are purchased first are sold out first, so when the prices are rising FIFO method will result in Lowest cost of goods sold and highest inventory valuation and as the cost of goods sold is lowest the income taxes will be higher due to high profits. In LIFO method, the goods which are purchased last are sold out first, so when the prices are rising LIFO method will result in Highest cost of goods sold and lowest inventory valuation and as the cost of goods sold is highest the income taxes will be low due to low profits.
Answers :
a. Highest cost of goods sold - LIFO
b. Lowest inventory valuation - LIFO
c. Highest income taxes - FIFO
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