Question

Which of the following statements is not a characteristic of the LIFO method of pricing inventory? During a period of falling prices, LIFO tends to maximize the amounts of income taxes owed The cost of goods sold is measured in relatively current costs Inventory is valued at relatively current costs During a period of rising prices, LIFO tends to minimize the amounts of income taxes owed

Answer 1

Inventory is valued at relatively current costs

Step-by-step explanation:

LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold. Inventory would be made up of older purchases not valued at current costs

In periods of rising prices, LIFO tends to minimise the amounts of income taxes owed because cost of goods would be higher due to inflation and this would reduce profit and hence taxes paid.

On the other hand, in periods of falling prices, LIFO tends to maximize the amounts of income taxes owed because cost of goods sold would be low and this would increase profit and hence taxes paid