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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