Monitor Company Uses the LIFO Method for Valuing Its Ending

question 150

Essay

Monitor Company uses the LIFO method for valuing its ending inventory. The following financial statement information is available for their first year of operation:
MONITOR COMPANY
Income Statement
For the year ended December 31
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 50,000 \\\hline \text { Cost of goods sold } & 23,000 \\\hline \text { Gross profit } & \$ 27,000 \\\hline \text { Expenses } & 13,000 \\\hline \text { Income before taxes } & \$ 14,000\\\hline\end{array}$ Monitor's ending inventory using the LIFO method was $8,200. Monitor's accountant determined that had they used FIFO, the ending inventory would have been $8,500.
a. Determine what the income before taxes would have been had Monitor used the FIFO method of inventory valuation instead of LIFO
b. What would be the difference in income taxes between LIFO and FIFO, assuming a 30% tax rate?

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Definitions:

Research Hypothesis

A statement predicting the relationship between variables in a study, opposing the null hypothesis.

ANOVA

Short for Analysis of Variance, a statistical method used to compare means of three or more samples.

Second Grouping Factor

A secondary variable used in an analysis to categorize or group data, allowing for comparisons across different levels of this variable.

4 × 3 Factorial Design

A statistical test used in experiments involving two independent variables, one with four levels and the other with three levels, to determine their effect on a dependent variable.