When prices are rising, which of the following inventory valuation methods produces the lowest income tax liability?
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A. B. C. D.B
When prices are rising, LIFO will produce the lowest profit, and the lowest income tax liability, because the last in (highest cost) inventory is the first out. This leaves the oldest inventory on hand and since it has the lowest cost, ending inventory will have the lowest value which means that cost of goods sold will be the highest and profits will be the lowest (ending inventory = beginning inventory + net purchases - cost of goods sold).