Question

The following inventory data are available for Hutchinson for the year 2020: Beginning Ending FIFO 317,300...

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:

Homework Answers

Answer #1

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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