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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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If inventory prices are rising, which inventory costing method should produce the smallest payment for taxes?

To determine

Concept introduction:

FIFO method:

FIFO Stands for First In First Out. Under this method, the units purchased first are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the latest units purchased.

LIFO method:

LIFO Stands for Last In First Out. Under this method, the latest units purchased are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the oldest units purchased.

To indicate:

The inventory costing methods that shall produce the smallest payment of taxes in case of prices are rises.

Explanation

Under the LIFO method, the latest units purchased are assumed to be sold first and cost of goods sold is calculated includes the cost of latest goods purchased...

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