Question

The accountant at Coronado Company 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 35% and the FIFO method will result in income before taxes of $8600. The LIFO method will result in income before taxes of $7300. What is the difference in tax that would be paid between the two methods?

Answer 1

Answer:

The difference in tax to be paid between the two methods is $455

Explanation:

In this question, we are asked to calculate the difference in tax for the LIFO and FIFO method.

The matter of importance here is that the tax rate is 35%. We proceed as follows:

For the FIFO income, the tax rate is 35% of 8,600 = 35/100 * 8600 = $3010

For the LIFO method, the tax rate is 35% of $7,300 = 35/100 * 7,300 = $2,555

The difference in tax that would be paid between the two methods is 3010-2555 = $455