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 : $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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