When a firm experiences LIFO liquidation under rising prices, it recognizes:
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A. B. C. D.A
In LIFO liquidation under rising prices, the quantity of goods purchased during a period is less than the quantity sold. This leads to a sale of goods purchased in prior periods at lower prices (since prices are rising). This understates the cost-of-goods-sold (COGS), thus overstating the income and causing higher taxes than in the absence of the LIFO liquidation. The higher taxes cause a higher cash outflow. (This is an extremely important topic with which you should be completely familiar.)