Questions: This exercise tests your understanding of the four inventory methods. List the name of the inventory method that best fits the description. Assume that the cost of inventory is rising. 1. Results in a cost of ending inventory that is close to the current cost of replacing the inventory FIFO method 2. Used to account for automobiles, jewelry, and art objects Specific-identification method 3. Generally associated with saving income taxes Applies to all four inventory methods Average-cost method FIFO method LIFO method Specific-identification method

The answer is C: LIFO method.

Explanation for each option:

1. Results in a cost of ending inventory that is close to the current cost of replacing the inventory:

   • FIFO method: This is correct. The First-In, First-Out (FIFO) method assumes that the oldest inventory items are sold first. Therefore, the ending inventory consists of the most recently purchased items, which are closer to the current cost of replacing the inventory.

2. Used to account for automobiles, jewelry, and art objects:

   • Specific-identification method: This is correct. The Specific Identification method tracks the actual cost of each individual item. This method is suitable for high-value, unique items like automobiles, jewelry, and art objects.

3. Generally associated with saving income taxes:

   • LIFO method: This is correct. The Last-In, First-Out (LIFO) method assumes that the most recently purchased items are sold first. In a period of rising prices, this results in higher cost of goods sold and lower taxable income, thus saving on income taxes.

Other methods mentioned:

• Average-cost method: This method calculates the cost of ending inventory and cost of goods sold based on the average cost of all units available for sale during the period. It does not specifically result in tax savings or ending inventory close to current replacement cost.
• Specific-identification method: As explained, this method is used for unique, high-value items.
• FIFO method: As explained, this method results in ending inventory close to current replacement cost.
• LIFO method: As explained, this method is generally associated with saving income taxes.