Monitor Company Uses the LIFO Method for Valuing Its Ending

question 185

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

---

Definitions:

Understated

Describes a situation where the amount, value, or importance of something is reported lower than it actually is, potentially affecting financial statements and analysis.

Overstated

A situation where financial figures are reported to be higher than they actually are, leading to a misrepresentation of a company's financial health.

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account columns to check the accuracy of the accounts.

Ledger

A comprehensive collection of all accounts and transactions of a company or individual, recorded in a systematic manner.