The records of Collins Aviation include the following accounts for inventory of aviation parts at July 31 of the current year:(Click the icon to view the records.)Read the requirements.Requirement 1. Prepare a partial income statement through gross profit under the average, FIFO, and LIFO methods. Round average cost per unit to two decimal places and all other amounts to the nearest dollar.Collins AviationPartial Income StatementYear Ended July 31Use theAverage cost$Sales revenueCost of goods soldGross profitRequirement 2. Which inventory method would you use to minimize income tax? Explain why this method causes income tax to be the lowest.method to minimize income tax because cost of goods sold is highest (gross profit is lowest) underFIFO126,420 $65,91960,501 $LIFO126,420 $65,37561,045 $126,42068,01558,405when inventory costs are

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Description: The records of Collins Aviation include the following accounts for inventory of aviation parts at July 31 of the current year:(Click the icon to view the records.)Read the requirements.Requirement 1. Prepare a partial income statement through gross

On the income tax liability side, the inventory method of valuation is having an impact on income…

Business

Accounting

Requirement 2. Which inventory method would you use to minimize income tax? Explain why this method causes income tax to be the lowest. when inventory costs are method to minimize income tax because cost of goods sold is highest (gross profit is lowest) under Use the

Requirement 2. Which inventory method would you use to minimize income tax? Explain why this method causes income tax to be the lowest. when inventory costs are method to minimize income tax because cost of goods sold is highest (gross profit is lowest) under Use the

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Inventory Costing Method. In the period of inflation, businesses will choose to use LIFO, whereas, during the deflation period, they will pick FIFO instead if they want to have the lowest income tax. Why is that?
Identify the inventory costing method (SI, FIFO, LIFO, or WA) best described by each of the following separate statements. Assume a period of increasing costs. 1. Results in the highest cost of goods sold. 2. Yields the highest net income. 3. Has the lowest tax expense because of reporting the lowest net income. 4. Better matches current costs with revenues. 5. Precisely matches the costs of items with the revenues they generate.
Typically, the impact of the LIFO reserve is to decrease cost of goods sold and decrease ending inventory increase cost of goods sold and increase ending inventory increase cost of goods sold and decrease ending inventory have no effect on cost of goods sold and ending inventory
What is the dollar-value method of LIFO inventory valuation?What advantage does the dollar-value methodhave over the specific goods approach of LIFO inventoryvaluation? Why will the traditional LIFO inventory costingmethod and the dollar-value LIFO inventory costingmethod produce different inventory valuations if thecomposition of the inventory base changes?
During periods of increasing unit costs, the LIFO inventory method resulys in lower income taxes. True or False
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 will be the correct answer for weight average cost method for ending inventory and cost of goods sold?
You have the following information for Wildhorse Gems. Wildhorse uses the periodic system of accounting for its inventory transactions. Wildhorse only carries one brand and size of diamonds-all are identical. Each batch of diamonds purchased is carefully coded and marked with its purchase cost. March 1 March 31 March 5: March 10- March 25 Beginning inventory 150 diamonds at a cost of $320 per diamond. Purchased 200 diamonds at a cost of $360 each. Sold 180 diamonds for $630 each. Purchased 350 diamonds at a cost of $385 each. Sold 395 diamonds for $680 each.
Which of the following statements are true regarding Costof Goods Sold?(i) Cost of Goods Sold represents the costs that a company incurred to purchase or produce inventory in thecurrent period.(ii) Cost of Goods Sold is an expense on the incomestatement.(iii) Cost of Goods Sold is affected by the inventorymethod selected by a company (FIFO, LIFO, etc.).a. (i) only c. (ii) and (iii)b. (ii) only d. All of the above.
Which of the following regarding the lower of cost ormarket rule for inventory are true?(i) The lower of cost or market rule is an example of thehistorical cost principle.(ii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, net income is reduced.(iii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, total assets are reduced.a. (i) only c. (ii) and (iii)b. (ii) only d. All of the above
Proponents of the LIFO inventory cost flow assumption argue that this costing method is superior to the alternatives because it results in better matching of revenue and expense. Required: a. Under LIFO, the release of the most recent purchase costs to the Cost of Goods Sold account results in better matching of revenue and expense. b. What is the impact on the carrying value of inventory in the balance sheet when LIFO rather than FIFO is used during periods of inflation? a. b. It understates the value of inventory in the balance sheet. It overstates the value of inventory in the balance sheet.
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.