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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—FIFO, LIFO, or weighted average cost— will yield the lowest annual income tax expense? Explain.

To determine

Cost flow assumptions:

It can be referred to as the method which determines the flow of costs when an inventory is sold. Instead of keeping a track record for cost of each product sold, a company adopts these methods, and identifies which units were sold. It differs from specific identification method because the actual physical movement of goods may be unrelated to the flow of costs.

To explain: the method of costing that will yield the lowest annual income tax expense.

Explanation

Under Last-in-First-Out method, the value of the closing stock consists of the initial purchased items...

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