Vance Company reported the following summarized annual data at the end of 2018: *Based on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $180,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Vance's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Question

Vance Company reported the following summarized annual data at the end of 2018:  *Based on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $180,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Vance's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Quizplus · Accepted Answer

The Answer of Vance Company reported the following summarized annual data at the end of 2018:  *Based on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $180,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Vance's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Vance Company Reported the Following Summarized Annual Data at the End