An accounting intern for a local CPA firm was reviewing the financial

statements of a client in the electronics industry. The intern noticed that the

client used the FIFO method of determining ending inventory and cost of goods

sold. When she asked a colleague why the firm used FIFO instead of LIFO,

she was told that the client used FIFO to minimize its income tax liability. This

response puzzled the intern because she thought that LIFO would minimize

income tax liability.

Required:

What would you tell the intern to resolve the confusion?