Franco Company uses the FIFO inventory method.Its 2010, the company reported net income of €840,000.Had average-cost been used, the company would have reported net income of €760,000.Assuming a 40% tax rate, what is the impact of the inventory cost flow assumption on Franco's taxes for 2010?

Question

Quizplus · Accepted Answer

The difference in net income between FIFO and average-cost is €80,000 (€840,000 - €760,000). With a 40% tax rate, the tax impact is €32,000 (€80,000 x 40%). Therefore, Franco would pay €32,000 more in taxes using FIFO.

Franco Company Uses the FIFO Inventory Method