Which method (FIFO or LIFO) would be preferred for income tax purposes in periods of declining prices? WHY?

Answer 1

In periods of declining prices, each shipment of merchandize you purchase would cost less than the previous shipment, so if your cost formula was FIFO, you'd be valuing your ending inventory at the most recent (and therefore lower) costs, resulting in a lower ending inventory, and therefore higher COGS and lower profit, thereby resulting in a lower tax to be paid.