Question

Compute the net income, using FIFO and LIFO and the following information:

Beginning Inventory 26,000 units @ $25.00

Purchases (new inventory) 26,000 units @ $30.00

Sales: 26,000 units @ $65.00

Tax Rate: 33%

Total Income before taxes: $51,500

Total Income after taxes: $34,505

Answer 1

Solution:

Net Income Under FIFO = $ 696,800

Net Income Under LIFO = $ 609,700

Working:

FIFO SYSTEM
Income statement
Revenue
Sales	$ 1,690,000
Less:
Cost of Goods Sold [26000*25]	$     650,000
Income before tax	$ 1,040,000
Less:Income Tax	$     343,200
Net Income	$     696,800
LIFO SYSTEM
Income statement
Revenue
Sales	$ 1,690,000
Less:
Cost of Goods Sold [26000*30]	$     780,000
Income before tax	$     910,000
Less:Income Tax	$     300,300
Net Income	$     609,700

Notes:

1) Under FIFO, Beginning Inventory will be sold first.

2) Under LIFO, Purchases [New Inventory] will be sold first.