Question

During 2017, Skysong Inc. changed from LIFO to FIFO inventory pricing. Skysong began operations in 2015 and its pretax income in 2016 and 2015 under LIFO was $530,000 and $625,000, respectively. Pretax income using FIFO pricing in the prior years would have been $561,000 in 2015 and $675,000 in 2016. In 2017, Skysong reported pretax income using FIFO pricing of $644,000. Show comparative income statements for Skysong beginning with "Income before income tax," as presented in the 2017 income statement. The tax rate for all years is 30%.

Answer 1

Answer:

See Explanation below for the detailed answer

Explanation:

The following are income statement summaries for prior years comparing the change in inventory valuation from LIFO to FIFO

2015 Lifo : $ 530000 Tax : $159000    Profit     $ 371000

        Fifo : $ 561000 Tax : $ 168300   Profit     $ 392700  Difference; $21700

2016 Lifo : $ 625000 Tax : $187500    Profit     $ 437500

        Fifo : $ 675000 Tax : $ 202500   Profit     $ 472500 Difference; $35000

2017 Fifo: $644000 Tax : $ 193200     Profit     $ 450800