Question

Nueva Company reported the following pretax data for its first year of operations.

Net sales		7,340
Cost of goods available for sale		5,790
Operating expenses		1,728
Effective tax rate		25	%
Ending inventories:
If LIFO is elected		618
If FIFO is elected		798

How much more will Nueva report in income tax if it elects FIFO instead of LIFO?

		$155.
		$135.
		$110.
		$45.

Answer 1

Solution:
	INCOME STATEMENT AS PER BASIS OF FIFO AND LIFO METHOD
		FIFO	LIFO
	Net Sales	$                  7,340	$                  7,340
	Less: Cost of Goods Sold:
	Beginning inventory	$                         -	$                         -
	Add: Cost of Goods Available for Sales	$                  5,790	$                  5,790
	Total Goods Available	$                  5,790	$                  5,790
	Less: Ending inventory	$                     798	$                     618
	Cost of Goods Sold	$                  4,992	$                  5,172
	Gross Revenue	$                  2,348	$                  2,168
	Less: Operating Expenses	$                  1,728	$                  1,728
	Net income before taxation	$                     620	$                     440
	Less: Income tax @ 25%	$                     155	$                     110
	Net income after tax	$                     465	$                     330
	Difference ($ 465 - $ 330)	$                     135
	Answer = Option 2 = $ 135