You are a financial analyst currently reviewing the financial statements of Danner International and Brady Enterprises, two companies of similar size within the same industry. Net incomes of $39,300and $42,700 were reported for 2011 by Danner and Brady, respectively. After a thorough comparison of the accounting methods used by the two companies, you find that they are similar except for the inventory cost flow assumption-Danner uses FIFO and Brady uses LIFO. You conduct a further review of Brady's footnotes and discover the following. Inventories declined during 2011, causing a LIFO liquidation, which accounted for $8,000 of the before-tax net income reported in 2011.

Brady's effective tax rate is 35 percent.REQUIRED:a. Restate Brady's net income assuming there was no LIFO liquidation in 2011. How does the restated amount compare to Danner's net income?b. Restate Brady's 2011 reported income higher or lower than Danner's reported net income? Explain.c. As of the end of 2011, how much accumulated income tax had Brady saved due to its choice of LIFO instead of FIFO? How much as of the end of 2010? Does LIFO save taxes in every year? Explain.d. Would it be advisable for Brady to change its cost flow assumption from LIFO to FIFO?Discuss.

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2011 2010 Inventories at current cost Less: Adjustment to LIFO Inventories at LIFO $42.400 4.800 S37,600 536,200 3.500 S32.700