The accountant at Cedric Company has determined that income before income taxes amounted to $7,000 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $315 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?
A) $5,950
B) $7,000
C) $7,315
D) $8,050

Question

Quizplus · Accepted Answer

The difference in taxes ($315) implies that the income before taxes under LIFO is higher by $315 / 0.30 = $1,050. Therefore, the income before taxes under LIFO is $7,000 + $1,050 = $8,050.

The Accountant at Cedric Company Has Determined That Income Before