Question

                                    2018                2017

Cash                            380                  260

LIFO Inventory           1,200               900

LIFO Reserve             900                  630

Retained Earnings       1,800               1,500

Net Income                 500                  450

1. B/S LIFO:  XYZ Corp. reported net income for 2018 of $500 million (using LIFO).  Use the above information to determine what XYZ’s 2018 net income would have been if the company had used FIFO?  Assume a 20% tax rate and show all work.

Answer 1

Answer-

LIFO Reserve : FIFO Inventory - LIFO Inventory

LIFO reserve Opening : $630 Million

LIFO reserve Closing : $900 Million

Difference in LIFO reserve : $900 Million - $630 Million = $270 Million (Created during the year)

Reported Net Income : $500 Million

Income should be increased by $270 Million if FIFO method have been used.

Tax rate : 20%

Net Income increase : $270 Million * 80% = $216 Million

Income should be Using FIFO Method : $500 Million + $216 Million = $716 Million