Question

If a company's inventory costs are rising, _________ inventory costing method(s) typically results in a higher income tax expense.

1) both FIFO and LIFO
2) the FIFO
3) the LIFO

Answer 1

If a company's inventory costs are rising, the LIFO (Last-In, First-Out) inventory costing method typically results in a higher income tax expense.

Step-by-step explanation:

If a company's inventory costs are rising, the LIFO (Last-In, First-Out) inventory costing method typically results in a higher income tax expense.

LIFO assumes that the most recently purchased inventory items are sold first.

When inventory costs are rising, using LIFO means that the cost of goods sold is higher, resulting in lower taxable income and consequently higher income tax expense.