Question

Knowledgeable investors will be more attracted to companies that choose the inventory value method that ______.

Multiple choice .
a. maximizes net income
b. balances reported net income and tax expense
c. minimizes tax expense

Answer 1

Knowledgeable investors will be more attracted to companies that choose the inventory value method that balances reported net income and tax expense.

Step-by-step explanation:

Knowledgeable investors will be more attracted to companies that choose the inventory value method that balances reported net income and tax expense.

When a company chooses an inventory value method that balances reported net income and tax expense, it ensures that its financial statements accurately reflect its profitability while also minimizing its tax liability.

For example, if a company uses the LIFO (last-in, first-out) method, it assumes that the most recently purchased inventory is sold first. This results in higher costs being allocated to the cost of goods sold, reducing net income and taxable income.