Final answer:
The untrue statement about LIFO is that it is prohibited by GAAP. LIFO is a recognized inventory valuation method under GAAP, but not under IFRS. Other statements about LIFO's alignment with replacement cost, assumption on selling recently acquired inventory first, and its effect on taxable income during inflation are accurate.
Step-by-step explanation:
The untrue statement concerning the Last In, First Out (LIFO) inventory method is d. LIFO is prohibited by generally accepted accounting principles (GAAP). Indeed, LIFO is an accepted inventory valuation method under GAAP, but it is not permitted under International Financial Reporting Standards (IFRS). The correct statements about LIFO are:
- a. The ending inventory under LIFO will tend to approximate replacement cost. This is true because if prices are rising, the oldest (and typically cheaper) units are left in ending inventory.
- b. LIFO assumes that the most recently acquired inventory is sold first. This is consistent with LIFO's principle of matching current costs with current revenues in periods of inflation.
- c. LIFO often results in a lower taxable income during periods of rising prices. When prices rise, using the LIFO method results in the newest, most expensive items being counted as cost of goods sold, leading to a higher COGS and thus lower taxable income.