In a Period of Inflation the Cost Flow Method That

question 45

Multiple Choice

In a period of inflation the cost flow method that results in the lowest income taxes is the

• A) FIFO method.
• B) LIFO method.
• C) average-cost method.
• D) gross profit method.

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Definitions:

Salvage Value

The estimated resale value of an asset at the end of its useful life, used in calculating depreciation.

Adjusting Entry

An accounting record created at the close of an accounting period to distribute expenses and revenue to the correct period.

Straight-Line Depreciation

A technique that distributes the expense of a physical asset evenly over its lifetime in yearly installments.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.