Concept explainers
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.
Average method:
Under this method, the cost per unit of the inventory is calculated as weighted average cost per unit and the cost of goods sold and inventory is calculated with the help of weighted average cost per unit.
To Indicate:
The method that will result in lowest annual income tax expense under rising costs situation
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
CengageNOWv2, 1 term Printed Access Card for Warren's Survey of Accounting, 8th
- If inventory prices are rising, which inventory costing method should produce the smallest payment for taxes?arrow_forwardWhen would using the FIFO inventory costing method produce higher inventory account balances than the LIFO method would? A. inflationary times B. deflationary times C. always D. neverarrow_forwardIf a company has three lots of products for sale, purchase 1 (earliest) for $17, purchase 2 (middle) for $15, purchase 3 (latest) for $12, which of the following statements is true? A. This is an inflationary cost pattern. B. This is a deflationary cost pattern. C. The next purchase will cost less than $12. D. None of these statements can be verified.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT