Answer:
In a situation where FIFO had been used, its reported net income for 2020 would have been $12 million higher than using LIFO for its financial statements.
Explanation:
The Ending Inventory of 2020 would have been $16 million higher in a case where FIFO had been used.
Hence, The Higher ending inventory will tend to means the lower cost of goods sold as well as the higher income which means that if FIFO had been used,the income of 2020 would have been higher by $16 million.
Income tax rate = 25%
The first step is to calculate for the Increase in Income tax expense
Using this formula to calculate for the Increase in Income tax expense
Increase in Income tax expense = Increase in Income x Income tax rate
Let plug in the formula
Increase in Income tax expense= 16 x 25%
Increase in Income tax expense= $4 million
The second step is to calculate for the Increase in Income net income
Using this formula
Increase in net income = Increase in income - Increase in Income tax expense
Let plug in the formula
Increase in net income = 16 - 4
Increase in net income = $12 million
Therefore in a situation where FIFO had been used, its reported net income for 2020 would have been $12 million higher than using LIFO for its financial statements.
