Question

in a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: multiple choice lifo. fifo. moving average. weighted average.

Answer 1

The inventory method that would report the lowest taxable income in a period of falling costs and stable inventory quantities is LIFO, as it matches the most recently purchased, higher-cost inventory against current revenues. Thecorrect option is lifo.

Step-by-step explanation:

In a period when costs are falling and inventory quantities are stable, the inventory method that would report the lowest taxable income is LIFO (Last-In, First-Out). This is because LIFO assumes that the last items added to the inventory are sold first. Therefore, in a period of declining costs, the most recently purchased inventory, which would have been bought at higher prices, is considered to be sold first, leading to a higher cost of goods sold and a lower taxable income.

This is in contrast to FIFO (First-In, First-Out), where the first items bought are considered sold first, typically reporting higher taxable income in a time of falling costs.

Moving average and weighted average methods smooth out price changes over time and do not focus on the timing of purchases or sales, so they would not result in the lowest possible taxable income compared to LIFO during a period of falling prices.