Monitor Company Uses the LIFO Method for Valuing Its Ending

question 140

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:
$\begin{array}{c}\text { MONITOR COMPANY}\\\text { Income Statement}\\\text { For the year ended December 31}\\\begin{array}{|l|r|}\hline \text { Sales } \quad \quad \quad \quad & \$ 50,000 \\\hline \text { Cost of goods sold } & 23,000 \\\hline \text { Gross profit } & \$ 27,000 \\\hline \text { Expenses } & \underline{13,000} \\\hline \text { Income before taxes } & \$ 14,000\\\hline\end{array}\end{array}$

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:

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Off-price Retailers

Retail stores that sell branded goods at lower prices than those typically charged by departmental stores or traditional retailers, often due to overproduction or closeouts.

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