Question

In its financial statements WalkerCo is reporting net income of $296. Its tax rate for the year was 39%. Total assets at the beginning of the year was $2,832 and at the end of the year $3,281. In the footnotes it is reported that the LIFO reserve at the beginning of the year was $465 and at the end of the year $216. If the company had used the FIFO inventory costing method, what would it have reported as its net income for the year. You may round to the nearest whole dollar.

Answer 1

If LIFO reserve Decreases over the year ,cost of goods sold under FIFO will be higher by amount of decrease in LIFO reserve .

With increase in cost of goods sold under FIFO method , Income will decrease (net of tax )

Adjustment to income = Decrease in reserve [1-tax]

                = [465-216 ] [1- .39]

                = 249* .61

               = 151.89 [SInce income is decreased ,it will be -151.89]

Net Income under FIFO = Net income under LIFO + Adjustment to income

                     = 296 - 151.89

                      = 144.11    [rounded to 144]