The accountant at Peacock Company has determined that income before income taxes amounted to $6500 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $318 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 income tax difference of $318 implies that the income before taxes under LIFO is higher. Since the tax rate is 30%, the difference in income before taxes is $318 / 0.30 = $1060. Therefore, the income before taxes under LIFO is $6500 + $1060 = $7560.

The Accountant at Peacock Company Has Determined That Income Before