A firm follows LIFO accounting. Its inventory accounts for a period showed the following sequential accounts:
Beginning inventory of 50 units, purchased at $5
50 units purchased at $10
35 units purchased at $9
25 units sold at $15
70 units sold at $12
Tax rate = 40%
Beginning LIFO reserve = $300 -
Then, the net income of the firm using LIFO is ________.
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A. B. C. D.B
The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Under LIFO, the goods purchased last are assumed to have been sold first.
Therefore, 35 of the sold units have a cost of $9 each, 50 units have a cost of $10 each and the remaining 10 have a cost of $5 each. Therefore, LIFO COGS =
35*9 + 50*10 + 10*5 = $865. Therefore, assuming no other costs, the pre-tax income equals 1,215 - 865 = $350 and the post tax income equals 350*(1-40%) =
$210.