Question

The following inventory data are available for Karius for the year 2020: Beginning Ending FIFO 117,300...

The following inventory data are available for Karius for the year 2020:

Beginning Ending
FIFO 117,300 140,500
LIFO 95,200 128,900

Assuming an income tax rate of 26%, if Karius elects FIFO instead of LIFO, its reported net income will be approximately:

Multiple Choice

  • $8,584 higher

  • $8,584 lower

  • $7,770 higher

  • $7,770 lower

Homework Answers

Answer #1

Answer : $7,770 lower

Explanation :

Step 1 :- calculation of net income under FIFO method :

Particulars Amount
Ending inventory under FIFO $1,40,500
(-) Beginning inventory under FIFO $1,17,300
Income before taxes $23,200
(-) taxes@26% $6,032
Net income $17,168

Step 2:- calculation of net income under LIFO method :

Particulars Amount
Ending inventory under FIFO $1,28,900
(-) Beginning inventory under FIFO $95,200
Income before taxes $33,700
(-) taxes@26% $8,762
Net income $24,938

Step 3 :-

Net income under FIFO - Net income under LIFO

= $17,168 - $24,938

= - $7,770

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