If Prices Are Rising and a Company Is Using LIFO

question 112

Multiple Choice

If prices are rising and a company is using LIFO, large purchases of inventory near the end of the year will:

• A) increase income taxes paid.
• B) decrease income taxes paid.
• C) not change the amount of income taxes paid.
• D) cannot be determined.

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Definitions:

Fair Value

The amount one would get from selling an asset or the cost to move a liability in a structured exchange among market players on the evaluation date.

Equity Method

An accounting method used to assess the profits earned by investments in other companies, where the investment is recorded at cost and adjusted according to the investor's share of the investee's profit or loss.

Fair Value Option

The fair value option is an accounting choice that allows companies to record certain financial assets and liabilities at their fair market value to provide a more relevant measurement of their financial position.

Unrealized Gains

Increases in the value of an investment that have not been realized through a sale and thus are not reflected in the entity's income.