Assign_4_-_Solutions_to_Practice_Problem

In periods of rising prices the use of lifo will

Info icon This preview shows pages 4–5. Sign up to view the full content.

View Full Document Right Arrow Icon
LIFO. In periods of rising prices, the use of LIFO will result in the lowest net income and thus the lowest income tax expense. 7. Net realizable value (estimated selling price less any direct cost of disposition, such as sales commissions). 8. a. Gross profit for the year was understated by $23,950. b. Merchandise inventory and stockholders’ equity (retained earnings) were understated by $23,950.
Image of page 4

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Ex. 6–10 a. 1. FIFO inventory > (greater than) LIFO inventory 2. FIFO cost of goods sold < (less than) LIFO cost of goods sold 3. FIFO net income > (greater than) LIFO net income 4. FIFO income tax > (greater than) LIFO income tax b. In periods of rising prices, the income shown on the company’s tax return would be lower than if FIFO were used; thus, there is a tax advantage of using LIFO. The federal tax laws require that if LIFO is used for tax purposes, LIFO must also be used for financial reporting purposes. This is known as the LIFO conformity rule. Thus, selecting LIFO for tax purposes means that the company’s reported income will also be lower than if FIFO had been used. Companies using LIFO believe the tax advantages
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern