The following inventory data are available for Hutchinson for the year 2020: Beginning Ending FIFO 317,300 380,700 LIFO 285,200 327,700 Assuming an income tax rate of 32%, if Hutchinson elects LIFO instead of FIFO, its reported net income will be approximately:
Beginning Inventory |
Ending Inventory |
|
Under FIFO |
317,300 |
380,700 |
Under LIFO |
285,200 |
327,700 |
Change |
32,100 |
53,000 |
If the entity used the LIFO method of inventory valuation, then the Cost of goods sold will be higher by $20,900 [$23,000 - $32,100]
Applicable tax rate = 32%
Therefore, the Income will be lower by to the enter of the after tax value of $20,900
= $20,900 x (1 – 0.32)
= $20,900 x 0.68
= $14,212
“Hence, its reported net income will be approximately $14,212 Lower”
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