The Accountant at Almira Company Is Figuring Out the Difference

question 59

Multiple Choice

The accountant at Almira Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $8,190. The LIFO method will result in income before taxes of $7,290. What is the difference in tax that would be paid between the two methods?

• A) $270.
• B) $630.
• C) $900.
• D) Cannot be determined from the information provided.

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Definitions:

Fair Value

An estimated market value of an asset, liability, or financial instrument, determined based on the current market conditions and not its historical cost.

Equity Investment

Investment in stock or equity interests of a company, representing ownership and often granting voting rights and dividends to the investor.

Fair Value Model

An accounting approach where assets and liabilities are revalued periodically to reflect their current market values rather than historical cost.

Amortized Cost Model

An accounting method where the carrying amount of a financial asset or liability is adjusted for amortization of discount/premium and impairment losses.