Which of the following is correct concerning the LIFO method (as compared to the FIFO method) in a period when price is rising?
A. Deferred tax and cost of goods sold are lower.
B. Current tax liability and ending inventory are higher.
C. Current tax liability is lower and ending inventory is higher.
D. Current tax liability is lower and cost of goods sold is higher.
Answer:D
LIFO (last-in, first out) benefits a taxpayer in periods of rising prices because recently incurred high costs flow through cost of goods sold while previously incurred low costs remain in ending inventory. Compared to FIFO, LIFO increases the cost of goods sold and decreases ending inventory, thereby decreasing gross profit, taxable income, and current tax liability.