The Multi Department Store Takes Physical Inventories at Each of Its

question 100

Multiple Choice

The Multi Department store takes physical inventories at each of its 300 stores on various dates between August 1 and September 30th each year.The company's tax year ends on the Monday closest to January 31st.The company's reduction in inventory due to breakage and theft after the last physical inventory in September 2016:

• A)Cannot be determined until the physical inventory is actually taken and therefore breakage that occurs in December 2016 will not be deductible until the year ending in January 2017.
• B)Must be delayed until the inventory has been taken as a result of the all-events test.
• C)Can be estimated and deducted for the year ending in January 2017.
• D)Can be estimated and deducted as of the end of the tax year,but only if the taxpayer uses the lower of cost or market inventory method.
• E)None on the above.

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Definitions:

M&M Proposition I

A theory stating, under certain conditions, that the value of a firm is unaffected by how it is financed, whether through debt or equity.

Interest Tax Shield

The reduction in income taxes that results from taking a deductible charge, such as interest on debt, reducing taxable income.

Tax

Compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Capital Structure

The mix of different forms of external funds and equity used by a firm to finance its overall operations and growth.