Income taxes on inventory profits can be deferred by ____.
A) different tax schedules
B) different inventory valuation methods
C) long-term equipment
D) different cash flow methods

Question

Quizplus · Accepted Answer

Income taxes on inventory profits can be deferred by choosing different inventory valuation methods such as LIFO (Last-In-First-Out) or FIFO (First-In-First-Out). LIFO method assumes that the most recently purchased items are sold first, which results in higher cost of goods sold and lower net income, and thus lower taxes. FIFO method assumes that the oldest items are sold first, which results in lower cost of goods sold and higher net income, and thus higher taxes. By choosing the LIFO method, a company can defer income taxes on inventory profits to a later period.

Income Taxes on Inventory Profits Can Be Deferred by ____