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HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end...

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2016 would have been $20 million lower. Assuming HH has a 30% income tax rate:

a. Its reported cost of goods for 2016 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.

b. Its reported cost of goods for 2016 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.

c. Its reported cost of goods sold for 2016 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.

d. Its reported cost of goods sold for 2016 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements

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Answer #1

Correct answer is Option - d. Its reported cost of goods sold for 2016 would have been $ 20 million higher if it had used FIFO rather than LIFO for its financial statements.

Presently HH Company uses LIFO method, and company disclosed that if FIFO method had been used, the closing inventory of the year 2016 would have been $ 20 million lower. Then it is clear that the Cost of goods sold for 2016 would have been $ 20 million higher if it had used FIFO rather than LIFO for its financial statements.

Income tax rate has no impact on the above calculation.

All other given options are wrong.

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