Allied Products Maintains a Large Inventory

question 164

Multiple Choice

Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, during which the purchase costs of its products have risen substantially. (More than one of the following answers may be correct.)

• A) Allied would have reported a higher net income in past years if it had been using the average cost method.
• B) Allied's financial statements imply a lower inventory turnover rate than they would if the company were using FIFO.
• C) If Allied were to let its inventory fall far below normal levels, the company's gross profit rate would decline.
• D) Allied would have paid more income taxes in past years if it had been using the FIFO method.

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Definitions:

Income

The money received, especially on a regular basis, for work or through investments.

Head of Household

A filing status for individual U.S. taxpayers who are unmarried and pay more than half the cost of maintaining a home for themselves and a qualifying person.

Total Income

The sum of all earnings or revenues received by an individual or organization, before any deductions or taxes.

Total Deductions

The sum of all the amounts subtracted from gross income to reduce taxable income, including tax, social security contributions, and other withholdings.