Answer:
a. LIFO is the last method of accounting for inventory by recording the most recently produced or purchases item as the item sold first . If there is an increase in the cost of the item , this would mean higher cost of goods as you would have to record the item with the higher cost as the sold item
b. 1. Income before taxes = 110,000
2. Income tax expense = 44,000
3. Net income = 66,000
4. Net cash provided by operating activities = 116,750
Explanation:
Cost of goods sold with FIFO = $1,850,000
Cost of goods sold with LIFO = $1,865,000
Extra cost using LIFO= 1,865,000 - 1,850,000 - 15,000
Income before taxes using LIFO = 125,000(FIFO amount)- 15,000 = 110,000
Income tax expense = 40% X 110,000 = 44,000
Net income = 110,000 - 44,000 = 66,000
Net cash provided by operating activities = 123,250(fifo amount ) - 15000(extra cost of goods) + 8,500 (tax savings) = 116,750
