Question #26
Reading: Reading 13 Integration of Financial Statement Analysis Techniques
PDF File: Reading 13 Integration of Financial Statement Analysis Techniques.pdf
Page: 14
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
ABC Tie Company reports income for the year 2009 as $450,000. The notes to its financial statements state that the firm uses the last in, first out (LIFO) convention to value its inventories, and that had it used first in, first out (FIFO) instead, inventories would have been $62,000 greater for the year 2008 and $78,000 greater for the year 2009. If earnings were restated using FIFO to determine the cost of goods sold (COGS), what would the net income be for the year 2009? Assume a tax rate of 36%. Net income would have been:
Answer Choices:
A. $455,760
B. $460,240
C. $439,760
Explanation
The reduction in COGS would result in an increase in net income (62,000 − 78,000) × (1 −
0.36).