24. In a period of rising prices, which inventory cost flow method results in the lowest income tax liability, all other things being equal? a. Weighted average b. FIFO c. LIFO d. Both answer a and answer b are correct
Added by Patrick B.
Close
Step 1
This is because LIFO assumes that the most recently purchased goods are sold first. Since prices are rising, the most recently purchased goods are the most expensive. Therefore, COGS will be higher under LIFO, resulting in lower net income and lower income tax Show more…
Show all steps
Your feedback will help us improve your experience
Azat Nurmukhametov and 55 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
ABC Corp. was formed on 1/1/05 and is in the business of buying and selling erasers. The cost of purchasing erasers and the number of erasers held in inventory has steadily increased since the company was formed. Which of the following inventory methods will result in the lowest reported gross profit in the year ended 12/31/13 income statement? a) Average cost b) FIFO c) LIFO d) Can't be determined with the information provided
Azat N.
In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows: a) Cost of goods sold will be higher and ending inventory will be lower b) Cost of goods sold will be higher and ending inventory will be higher c) Cost of goods sold will be lower and ending inventory will be higher d) Cost of goods sold will be lower and ending inventory will be lower
Rachel G.
The inventory costing method that reports the earliest costs in ending inventory is:_______ a. LIFO. b. FIFO. c. specific identification. d. weighted average.
Sanchit J.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD