If Merchandise Inventory Is Being Valued at Cost and the Price

question 33

Multiple Choice

If merchandise inventory is being valued at cost and the price level is consistently rising, which method of costing will yield the highest inventory?

• A) Average cost
• B) LIFO
• C) FIFO
• D) All methods will generate the same gross profit.

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Definitions:

Standard Deduction

A preset reduction in taxable income on a federal income tax return, not requiring itemization of individual deductions.

Taxable Income

The sum of money that determines the tax liability of a person or business to the government, following the subtraction of deductions and exemptions.

Average Tax Rate

The fraction of total income that is paid as taxes, calculated by dividing the total tax paid by the total income.

Taxable Income

Income subject to tax, after deductions and exemptions, according to the laws of the tax system.