Knowledge Check Question 3: When inventory prices are falling, using the LIFO costing method will generally result in a: A. Lower ending inventory value than under FIFO B. Lower income tax expense than under FIFO C. Lower cost of goods sold than under FIFO D. Lower net income than under FIFO

Knowledge Check Question 3: When inventory prices are falling, using the LIFO costing method will generally result in a: A. Lower ending inventory value than under FIFO B. Lower income tax expense than under FIFO C. Lower cost of goods sold than under FIFO D. Lower net income than under FIFO

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: O In the case of flat-rate write-offs on receivables, the sales tax must also be corrected. O All…

A: Production cost refers to the expenses involved while producing a certain product.

Q: Q2. Which of the following inventory valuation methods typically results in the highest reported…

A: B) Last - In, First - Out (LIFO)Explanation:LIFO (Last-in, First-out) is typically used during…

Q: In an inflationary economy, the use of FIFO maximizes the cost of goods sold and minimizes the cost…

A: In an inflationary economy, the prices of goods keep on rising until the economy slows down. Thus,…

Q: To hold back unrealized profit in ending inventory, cost of goods sold is decreased. True or False?

A: Unrealized profits in the literal sense means those profits that are not realized yet. Unrealized…

Q: 6. Assume inventory costs are increasing over time. a. Will FIFO or LIFO lead to higher Cost of…

A: The inventory can be valued using various methods as LIFO, FIFO and weighted average. LIFO stands…

Q: None

A: Detailed explanation:When income is flat or decreasing while revenue is increasing it is probably…

Q: During a period of steadily rising prices, which of the methods of measuring the cost of goods is…

A: The inventory can be valued using various methods as LIFO, FIFO and weighted average method. The…

Q: Which of the following is not a disadvantage of using the FIFO cost flow assumption? includes all…

A: Lets understand the basics.There are various methods follow to calculate inventory balance. It…

Q: Focusing on target net income rather than operating income will increase the breakeven point. Select…

A: The specific amount of profit that a business hopes to make in a certain amount of time is called…

Q: What does it mean when a company has a major expense? Like for example, "The major expense for…

A: For your understanding - There are two types of cost direct costs and indirect costs. Direct costs…

Q: Which of the following performance measures will increase if inventory decreases and all else…

A: Return on investment measures the net earned on the assets employed by the business.

Q: What is the relationship between revenue and net income on the Income Statement? As contribution…

A: Revenue represents the total income generated by a company from its primary operations, such as…

Q: 18. Which method can result in higher income taxes during periods of rising prices? a) FIFO b) LIFO…

A: We firstly need to understand what is LIFO method. LIFO is an inventory valuation method where the…

Q: When the cost of inventory is increasing: LIFO shows lower COGS and lower taxable income FIFO shows…

A: The inventory can be valued using various methods as FIFO, LIFO and average method. The cost of…

Q: Assuming rising inventory prices, which statement is correct? Group of answer choices A. FIFO…

A: INTRODUCTION: First in, first out, or FIFO, is a technique of valuing assets or inventories. The…

Q: How important is valuing inventory for financial statement purposes to a company’s bottom line (net…

A: Valuing inventory is crucial for a company's financial statement as it directly impacts the cost of…

Q: In a period of falling prices, which inventory method would result in the lowest tax burden? a.…

A: FIFO is first in first out which means inventory bought first is sold first.LIFO is last in first…

Q: Explain the purpose of the inventory turnover ratio? Is it possible for a firm to have a high…

A: In finance we make use of various financial ratios to determine the financial health of a company.…

Q: Which inventory method will result in lower net income in a period of rising prices? Which inventory…

A: First-in-First-Out (FIFO): In this method, items purchased initially are sold first. So, the value…

Q: The equation for Gross Profit is "Gross Profit = Revenues - Cost of Goods." Which of the following…

A: Gross income is direct income of a business generated from direct revenues of the company. It is an…

Q: the lower cost or market is a method of inventory valuation true or false?

A: Inventory valuation is the accounting process in which the monetary value assigned to the unsold…

Q: Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income…

A: >> LIFO Method means Last in first out i.e latest purchase is sold first. >> In rising…

Q: Which U.S. GAAP principle or rule would apply if the net realizable value of acompany’s inventory is…

A: Net realizable value: Net realizable value is the net amount of receivables which a business expects…

Question

Can you explain why the answer is B and not C. If inventory prices are decreasing wouldnt LIFO result in a lower COGS and which would lead to a higher Net income thus higher income tax expense?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Answer

VIEW

Step 2 Clarification

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

FIFO and weighted average. But what if a company wants to use LIFO to report its inventory because of the significant tax benefit? How could dollar-value LIFO help them use FIFO for managerial purposes but LIFO for financial statement reporting?
When inventory costs rise and inventory quantities are not decreasing, what does the LIFO produces?
Which of the following statements Is/are true? Multiple Cholce In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method. All of the other answer choices are true. In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO. In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.
What is the main criticism of LIFO? A. It presents a balance sheet figure that is out-of-date. B. It artificially creates a higher income. C. It utilizes a unit cost that has no evidence of existence. D. It is often complicated to implement, especially if inventory costs change frequently.
DONT GIVE ANSWER IN IMAGE FORMAT
18. Which method can result in higher income taxes during periods of rising prices? a) FIFO b) LIFO c) Weighted Average d) Specific Identification
2. Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes. B. Which inventory method would best meet Shepherd's goal? Enter answer here. C. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need? Enter answer here.
Which one of the following statements is true? a. Income manipulation is difficult under LIFO.b. Accounting principles do not require that the inventory cost flow approximate the physical flow of goods.c. Companies may use LIFO for tax purposes and FIFO in the financial statements.d. In periods of declining prices, LIFO will result in the payment of less income taxes.