Aiwa Inc Uses the Average-Cost Inventory Method

question 128

Multiple Choice

Aiwa Inc. uses the average-cost inventory method. In 2014, the company reported net income of ¥59,600,000. Had average-cost been used, the company would have reported net income of ¥58,900,000. Assuming a 25% tax rate, what is the impact of the inventory cost flow assumption on Aiwa's taxes for 2014?

• A) Aiwa would pay ¥175,000 less in taxes for 2014 as a result of using the average-cost inventory method rather than FIFO.
• B) Aiwa would pay ¥525,000 less in taxes for 2014 as a result of using the average-cost inventory method rather than FIFO.
• C) The inventory method does not impact the amount of income tax paid.
• D) Not determinable without income before taxes.

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Definitions:

Adler

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Adler

Alfred Adler was an Austrian medical doctor and psychotherapist who founded the school of individual psychology, focusing on the importance of feelings of inferiority.