Crow Corporation has used the LIFO inventory method for the past 10 years.During that time,the prices Crow pays for the inventory have increased by 50%.Its inventory value when it first adopted LIFO was $5,000,000.The company began using a just-in-time inventory system the same year it adopted LIFO,and although sales have increased,the quantities of goods on hand at year end has not changed in the past ten years.The corporation's marginal tax rate has been 35% in all of the years.As a result of the LIFO election:
A)The company has deferred $5,000,000 of income tax.
B)The company has deferred $1,750,000 ($5,000,000 × .35)of income tax.
C)The LIFO election did not defer any income tax because the quantity of goods on hand has not changed.
D)The company has deferred $875,000 [(.50)($5,000,000)(.35)] of income tax.
E)None of these.

Question

Quizplus · Accepted Answer

Inventory cost at FIFO increased by $2,500,000 (.50 × $5,000,000),but the quantities of goods remained the same;therefore,the LIFO method deferred the $2,500,000 and the deferred tax is $875,000 (.35 × $2,500,000).

Crow Corporation Has Used the LIFO Inventory Method for the Past