Burnham Company reported the following summarized annual data at the end of 2014: *Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $205,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Burnham's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Question

Burnham Company reported the following summarized annual data at the end of 2014:  *Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $205,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Burnham's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Quizplus · Accepted Answer

The Answer of Burnham Company reported the following summarized annual data at the end of 2014:  *Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $205,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Burnham's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Burnham Company Reported the Following Summarized Annual Data at the End