A firm using LIFO accounting has a LIFO reserve of 500, with a LIFO ending inventory of 2,300. It is currently in the 35% tax bracket. If it switches to FIFO accounting, its ending inventory would be reported at ________.
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A. B. C. D.Explanation
LIFO Reserve = FIFO Ending inventory value - LIFO Ending inventory value Therefore, 500 = FIFO Ending inventory value - 2,300, giving the value of the ending inventory under FIFO = 2,800.
To calculate the ending inventory under the FIFO (First-In, First-Out) accounting method, we need to adjust the LIFO (Last-In, First-Out) ending inventory by the LIFO reserve. The LIFO reserve represents the difference between the inventory value under LIFO and FIFO methods.
Given: LIFO reserve = 500 LIFO ending inventory = 2,300
To switch from LIFO to FIFO, we add the LIFO reserve to the LIFO ending inventory. This adjustment accounts for the difference in inventory valuation methods.
Ending inventory under FIFO = LIFO ending inventory + LIFO reserve = 2,300 + 500 = 2,800
Therefore, the ending inventory under the FIFO accounting method would be reported as $2,800.
The correct answer is option B. 2,800.