The Use of the LIFO Inventory Method for Tax Purposes

question 24

Multiple Choice

The use of the LIFO inventory method for tax purposes:

• A)Will not defer income if the prices are increasing and quantities of inventories are decreasing.
• B)Is required for tax purposes if the taxpayer uses the LIFO method for reporting to stockholders and creditors.
• C)Will result in a recapture of deferred income if the quantities of inventories decrease.
• D)Does not affect the company's financial accounting for inventories and cost of goods sold.
• E)None of the above.

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Definitions:

Preferred Stock

Stock with dividend priority over common stock, normally with a fixed dividend rate, often without voting rights.

Common Stock Dividends

Dividends that are paid to holders of a company's common stock, often from the company's profits.

Dividend Increases

An action by a company to increase the amount of dividends paid out to shareholders, usually as a result of increased profitability.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, as a reward for investing their capital.