EXERCISE 4–1 BigBook.Com uses LIFO inventory accounting. Notes to BigBook.Com’s Year 9 financial statements disclose the following (it has a marginal tax rate of 35%):

Inventories Year 8 Year 9 Raw materials ............ $392,675 $369,725 Finished products ....... 401,342 377,104 794,017 746,829 Less LIFO reserve ........ (46,000) (50,000)

$748,017 $696,829 Required:

a. Determine the amount by which Year 9 retained earnings of BigBook.Com changes if FIFO is used.

b. Determine the amount by which Year 9 net income of BigBook.Com changes if FIFO is used for both Years 8 and 9.

c. Discuss the usefulness of LIFO to FIFO restatements in an analysis of BigBook.Com.