Asked by Katie Uittenbogaard on Jun 03, 2024
Verified
LIFO's tax advantage is that
A) it provides a higher net income than FIFO during periods of rising prices and nondecreasing inventory quantities.
B) it provides a lower net income than FIFO during periods of rising prices and nondecreasing inventory quantities.
C) it provides a lower net income than FIFO during periods of falling prices and nondecreasing inventory quantities.
D) it provides a lower net income than FIFO during periods of rising prices and decreasing inventory quantities.
LIFO
The Last In, First Out approach to inventory valuation prioritizes the sale of the most recently manufactured items before older stock.
Tax Advantage
A tax advantage refers to the economic bonus that applies to certain accounts or investments that are exempt from taxation, or taxed at a lower rate.
Rising Prices
A situation where the general level of prices for goods and services increases over a period, indicative of inflation.
- Comprehend the tax implications and advantages of using LIFO inventory valuation method.
Verified Answer
KB
Kassi BrightJun 05, 2024
Final Answer :
B
Explanation :
LIFO (Last In, First Out) results in a lower net income than FIFO (First In, First Out) during periods of rising prices and nondecreasing inventory quantities because the cost of goods sold (COGS) is higher with the most recently acquired (and thus more expensive) inventory being sold first. This lower net income leads to a tax advantage by reducing taxable income.
Learning Objectives
- Comprehend the tax implications and advantages of using LIFO inventory valuation method.