A Company Using LIFO for Tax Purposes ________

question 70

Multiple Choice

A company using LIFO for tax purposes ________.

• A) can use either LIFO or FIFO for financial reporting
• B) must use LIFO for financial reporting
• C) will have more taxes to pay with LIFO than FIFO in a period of rising inventory costs and stable inventory levels
• D) will report higher net income with LIFO than FIFO in a period of rising inventory costs and stable inventory levels

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Definitions:

Perpetual Debt

Debt instruments with no maturity date, allowing issuers to pay interest indefinitely without repaying the principal.

Coupon Rate

The yearly interest rate paid on a bond, shown as a percentage of its nominal value.

Interest Tax Shield

The reduction in income taxes that results from taking allowable deductions for interest expense.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as mortgage interest or depreciation.