Question #16
Reading: Reading 13 Integration of Financial Statement Analysis Techniques
PDF File: Reading 13 Integration of Financial Statement Analysis Techniques.pdf
Page: 8
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Inventories are listed on the balance sheet at $600,000, retained earnings are $1.9 Million. In the notes to financial statements, you find a LIFO reserve of $125,000. Also, the probability of a LIFO liquidation is high. Assuming a tax rate of 36%, what will be the adjusted value of retained earnings?
Answer Choices:
A. $1,820,000.00
B. $1,855,000.00
C. $1,980,000.00
Explanation
The highly probably LIFO liquidation suggests net income, income tax expense, and equity
will rise. The analyst can make this adjustment now for forecasting purposes. The
adjustment to retained earnings will be: $125,000 × (1 − 0.36).