Question

The accountant at Novak Corp. is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $21330. The LIFO method will result in income before taxes of $19800. What is the difference in tax that would be paid between the two methods? Cannot be determined from the information provided. $1530 $1071 $459

Answer 1

Answer:

$459

Explanation:

Computation of the given data are as follows:

Tax rate = 30%

Income before taxes (FIFO method) = $21,330

So, tax amount = $21,330 × 30%

= $6,399

Income before taxes (LIFO method) = $19,800

So, tax amount = $19,800 × 30%

= $5,940

So, we can calculate the difference in taxes by using following formula:

Difference in Tax = $6,399 - $5,940

= $459