Franco Company Uses the FIFO Inventory Method

question 208

Multiple Choice

Franco Company uses the FIFO inventory method. Its 2014, the company reported net income of €820,000. Had average-cost been used, the company would have reported net income of €760,000. Assuming a 40% tax rate, what is the impact of the inventory cost flow assumption on Franco's taxes for 2014?

• A) Franco would pay €24,000 more in taxes for 2014 as a result of using FIFO inventory method rather than average-cost.
• B) Franco would pay €36,000 less in taxes for 2014 as a result of using FIFO inventory method rather than average-cost.
• C) The inventory method does not impact the amount of income tax paid.
• D) Not determinable without income before taxes.

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