Question
1.Betty Company began operations in 2016 and uses the average cost method in costing its inventory. In 2017, Betty is investigating a change to the
1.Betty Company began operations in 2016 and uses the average cost method in costing its inventory. In 2017, Betty is investigating a change to the LIFO method. Before making that determination, Betty desires to determine what effect such a change will have on net income. Betty has compiled the following information:
2016 2017
Ending Inventory using:
Average cost $180,000 $200,000
LIFO $180,000 110,000
Net income (computed using the average cost method) 120,000 170,000
Assume a 40% tax rate. If Betty adopted LIFO in 2017, net income would be:
a. $80,000. b. $116,000. c. $170,000. d. $224,000.
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