Asked by Priya Puppala on May 31, 2024
Verified
Which of the following is not a disadvantage of using the FIFO cost flow assumption?
A) creates the highest outflow for income taxes during periods of rising prices
B) does not match current costs against current revenues
C) includes all the holding gains in income during periods of rising prices
D) provides a relevant ending inventory value
FIFO Cost Flow
An inventory valuation method where the cost of the oldest inventory items are the first to be recorded as sold.
Income Taxes
Taxes imposed by government authorities on individuals or entities' income and business profits.
Ending Inventory Value
The total value of all inventory items in stock at the end of an accounting period.
- Determine and evaluate the pros and cons of the LIFO and FIFO inventory approaches.
Verified Answer
JP
Jason PatronikMay 31, 2024
Final Answer :
D
Explanation :
The FIFO cost flow assumption provides a relevant ending inventory value, which is an advantage compared to other cost flow assumptions. A is a disadvantage because FIFO creates the highest outflow for income taxes during periods of rising prices. B is a disadvantage because FIFO does not match current costs against current revenues. C is a disadvantage because FIFO includes all the holding gains in income during periods of rising prices, which can lead to overstated income and taxes.
Learning Objectives
- Determine and evaluate the pros and cons of the LIFO and FIFO inventory approaches.
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