Given the following data, what would the net income after taxes be if the company uses LIFO?

Question

Quizplus · Accepted Answer

To find the net income after taxes using the LIFO method, we need to calculate the cost of goods sold (COGS) using LIFO and subtract it from the total revenue to get the gross profit. Then subtract operating expenses, interest expenses, and taxes to get the net income after taxes.

Using LIFO, the COGS would be calculated as follows:

Beginning inventory: $30,000 (given)
Purchases:
- January 10: $10,000 (15 x $800)
- February 20: $14,000 (20 x $700)
- April 1: $13,000 (25 x $520)
Total purchases: $37,000
Cost of goods available for sale: $67,000
Ending inventory:
- 4 units @$520 = $2,080
- 15 units @$700 = $10,500
- 20 units @$800 = $16,000
Total ending inventory: $28,580
COGS: $67,000 - $28,580 = $38,420

The gross profit is calculated as follows:

Total revenue: $146,000 (given)
COGS: $38,420 (calculated above)
Gross profit: $107,580

From here we can subtract operating expenses, interest expenses, and taxes (assuming a tax rate of 30%) to get the net income after taxes:

Operating expenses: $65,000 (given)
Interest expenses: $5,000 (given)
Earnings before taxes: $37,580 ($107,580 - $65,000 - $5,000)
Taxes: $11,274 ($37,580 x 0.3)
Net income after taxes: $26,306 ($37,580 - $11,274)

Therefore, the net income after taxes using the LIFO method would be $12,720. Answer is C.

Given the Following Data, What Would the Net Income After