Breguet Company Uses the FIFO Inventory Method

question 174

Multiple Choice

Breguet Company uses the FIFO inventory method. The company reported inventory of CHF2,270,000 on its December 31, 2014 statement of financial position. Had average-cost been used, the company would have reported inventory of CHF1,860,000. The company's tax rate is 30%. What is the impact of the inventory cost flow assumption on Breguet's 2014 financial statements?

• A) Income before taxes reported by Breguet would be CHF410,000 lower as a result of using the FIFO cost flow assumption.
• B) Breguet would pay CHF123,000 less in taxes for 2014 as a result of using the FIFO cost flow assumption.
• C) Income after taxes reported by Breguet would be CHF287,000 higher as a result of using the FIFO cost flow assumption.
• D) The only financial statement affected by the cost flow assumption is the statement of financial position, which would report CHF410,000 more in inventory as a result of using the FIFO cost flow assumption.

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Definitions:

Satisfaction

in legal terms means the fulfillment or discharge of an obligation, such as the repayment of a debt, resulting in the termination of the obligation.

Condition Precedent

A condition in a contract that must be met before a party's obligation becomes enforceable.

Condition Subsequent

A legal term referring to an event or state of affairs that, if it occurs, will terminate a party's rights under a contract.

Repudiation

The rejection or denial of the validity of a contract, claim, or other obligations, implying an intent not to fulfill the terms.