The accountant at Reber Company has determined that income before income taxes amounted to $6,750 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $225 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?

Question

Quizplus · Accepted Answer

The difference in taxes ($225) implies a difference in income before taxes due to the costing method. Since LIFO results in higher taxes, it means higher income before taxes. The tax difference is $225, which is 30% of the income difference. Therefore, the income difference is $225 / 0.30 = $750. Adding this to the FIFO income before taxes ($6,750) gives $7,500.

The Accountant at Reber Company Has Determined That Income Before