Identify the inventory costing method best described by each of the following separate statements. Assume a period of increasing costs.
_____3. Provides a tax advantage (deferral) to a corporation when costs are rising.
Any fee charged by the central government or any authority on the benefits generated by the individual and business is known as tax.
LIFO Provides a tax advantage (deferral) to a corporation when costs rise.
Explanation: Under the LIFO method, the cost of goods sold was reported higher than in the FIFO method. Due to the higher cost of goods sold, reported income is lower, and consequently, the tax liability will be lower. Therefore, it will provide a tax advantage.
Refer to the information in QS 5-10 and assume the periodic inventory system is used. Determine the costs assigned to ending inventory when costs are assigned based on specific identification. Of the units sold, eight are from the December 7 purchase and seven are from the December 14 purchase. (Round per unit costs and inventory amounts to cents.)
Use the data and results from Exercise 5-5 to prepare comparative income statements for the month of January for the company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)
3. If costs were rising instead of falling, which method would yield the highest net income?
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