Which inventory valuation method is most likely to result in lower taxes during periods of rising prices?

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Q: Which inventory valuation method is most likely to result in lower taxes during periods of rising prices?

Solution: LIFO (Last In, First Out) results in higher cost of goods sold during periods of rising prices, leading to lower taxable income.

Steps: 6

Step 1: Understand that inventory valuation methods are ways to calculate the cost of goods sold (COGS).
Step 2: Know that there are different methods, including FIFO (First In, First Out) and LIFO (Last In, First Out).
Step 3: Recognize that during periods of rising prices, the cost of newer inventory is higher than older inventory.
Step 4: Learn that LIFO assumes the most recently purchased items are sold first, which means the higher costs are used to calculate COGS.
Step 5: Realize that when COGS is higher, the taxable income is lower because you subtract COGS from sales revenue.
Step 6: Conclude that using LIFO during rising prices results in lower taxes due to the higher COGS.