The accountant at Paige Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or average-cost as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $18,200. The average-cost method will result in income before taxes of $16,450. What is the difference in tax that would be paid between the two methods?
A) $1,750.
B) $750.
C) $525.
D) Cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

The difference in income before taxes between FIFO and average-cost is $18,200 - $16,450 = $1,750. The tax difference is 30% of $1,750, which is $525.

The Accountant at Paige Company Is Figuring Out the Difference