If Karp had used FIFO instead of LIFO, its reported net income for the year ended 31 December 2018 would have been higher by an amount closest to :

A . \($30\) million.

B . \($38\) million.

C . \($155\) million.

John Martinson, CFA, is an equity analyst with a large pension fund. His supervisor, Linda Packard, asks him to write a report on Karp Inc. Karp prepares its fi nancial statements in accordance with US GAAP. Packard is particularly interested in the eff ects of the company’s use of the LIFO method to account for its inventory. For this purpose, Martinson collects the fi nancial data presented in Exhibits 1 and 2.

Martinson fi nds the following information in the notes to the fi nancial statements:
• The LIFO reserves as of December 31, 2018 and 2017 are \($155\) million and \($117\) million respectively, and 

• The effective income tax rate applicable to Karp for 2018 and earlier periods is 20 percent.

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EXHIBIT 1 Balance Sheet Information (US$ Millions) As of December 31 Cash and cash equivalents 2018 2017 172 157 Accounts receivable Inventories 626 458 620 539 Other current assets 125 65 Total current assets 1,543 1,219 Property and equipment, net 3,035 2,972 Total assets 4,578 4,191 Total current liabilities 1,495 1,395 Long-term debt 644 604 Total liabilities 2,139 1,999 Common stock and paid in capital 1,652 1,652 Retained earnings 787 540 Total shareholders' equity 2,439 2,192 Total liabilities and shareholders' equity 4,578 4,191