During a Period of Rising Prices, If a Firm Desires

question 46

Multiple Choice

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the ________ inventory valuation method.

• A) FIFO (first-in, first-out)
• B) LIFO (last-in, first-out)
• C) sliding scale
• D) average cost

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Definitions:

Bad Debts

Accounts receivable that a company does not expect to collect and therefore writes off as a loss.

Allowance for Doubtful Accounts

A contra-asset account that estimates the portion of accounts receivable which may never be collected.

Collections

The process of pursuing payments of debts owed by individuals or businesses, typically involving accounts receivable teams or collection agencies.

Selling Goods on Account

The process of selling merchandise to a buyer where payment is to be made at a future date as agreed.