Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, dur-ing which the purchase costs of its products have risen sub-stantially. (More than one of the following answers may be correct.)a. Allied would have reported a higher net income in pastyears if it had been using the average-cost method.b. Allied’s financial statements imply a lower inventoryturnover rate than they would if the company wereusing FIFO.c. If Allied were to let its inventory fall far below normallevels, the company’s gross profit rate would decline .d. Allied would have paid more income taxes in past yearsif it had been using the FIFO method.
Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, dur-ing which the purchase costs of its products have risen sub-stantially. (More than one of the following answers may be correct.)a. Allied would have reported a higher net income in pastyears if it had been using the average-cost method.b. Allied’s financial statements imply a lower inventoryturnover rate than they would if the company wereusing FIFO.c. If Allied were to let its inventory fall far below normallevels, the company’s gross profit rate would decline .d. Allied would have paid more income taxes in past yearsif it had been using the FIFO method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Allied Products maintains a large inventory. The company
has used the LIFO inventory method for many years, dur-
ing which the purchase costs of its products have risen sub-
stantially. (More than one of the following answers may be
correct.)
a. Allied would have reported a higher net income in past
years if it had been using the average-cost method.
b. Allied’s financial statements imply a lower inventory
turnover rate than they would if the company were
using FIFO.
c. If Allied were to let its inventory fall far below normal
levels, the company’s gross profit rate would decline .
d. Allied would have paid more income taxes in past years
if it had been using the FIFO method.
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