This is a question 826 from ninja
Which of the following is correct concerning the LIFO method (as compared to the FIFO method) in a period when prices are rising?
A.Deferred tax and cost of goods sold are lower.
B.Current tax liability and ending inventory are higher.
C.Current tax liability is lower and ending inventory is higher.
D.Current tax liability is lower and cost of goods sold is higher.
Correct answer is D. And the explanation is :
“LIFO treats the last items added to inventory as being the first ones charged to cost of goods sold. In a period of rising prices, this would result in a higher cost of goods sold compared to FIFO. With a higher cost of goods sold, current taxable income would be reduced resulting in a lower current tax liability.”
I think this is backwards and the right answer is B.
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