Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Inventories valued on the LIFO basis at December 31, 2016 and 2015 were approximately $47.5 million and $51.8 million, respectively, less than the amounts of

Inventories valued on the LIFO basis at December 31, 2016 and 2015 were approximately $47.5 million and $51.8 million, respectively, less than the amounts of such inventories valued at current costs. As a result of reducing certain inventory quantities valued on the LIFO basis, net income (after tax) increased by $2.2 million, $1.8 million, and $1.3 million in 2016, 2015, and 2014, respectively.

a. By how much would net income (after taxes) have differed for 2016 if Varscom had used FIFO method for valuation of inventory items, instead of LIFO? Assume a 40% marginal tax rate. Be sure to indicate whether FIFO income would be higher or lower than LIFO income. (Hint: By definition, difference between LIFO inventory and current cost inventory is LIFO reserve)

b. What would the LIFO reserve have been on December 31, 2016 if no LIFO liquidation had occurred in 2016? (Hint: without LIFO liquidation, LIFO reserve does not reflect the pretax profit from the liquidation of LIFO layer)

c. What would motivate Varscom management decide to liquidate the LIFO inventory layer?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Benefit Analysis Concepts And Practice

Authors: Anthony E. Boardman, David H. Greenberg, Aidan R. Vining, David L. Weimer

3rd Edition

0131435833, 978-0131435834

More Books

Students also viewed these Accounting questions

Question

c. Are there any prerequisites for the course?

Answered: 1 week ago