Question

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

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