Question

Tamarisk, Inc. had the following inventory transactions occur during 2017: Units Cost/unit Feb. 1, 2017 Purchase 94 $94 Mar. 14, 2017 Purchase 161 $98 May 1, 2017 Purchase 114 $102 The company sold 265 units at $131 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2600, what is the company’s after-tax income using LIFO?

a. $4012
b. $3982
c. $5689
d. $5732

Answer 1

Company’s after-tax income using LIFO would be $3,982

Step-by-step explanation:

Revenues: 265 * $131 = $34,715

To calculate the cost of the units sold using LIFO you have to use the cost of the last purchases.

For this case it would be:

114 units * $102 + 151 units * $ 98 = $26,426

Once we have the gross profit (deducting the cost from the net sales), we have to deduct the expenses to obtain the net profit before taxes.

$34,715 net sales

-

$26,426 LIFO cost of goods

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$8,289 gross profit

-

$2,600 expenses

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$5,689 net profit before taxes

$1,707 (30% TAX)

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$3,982 net income

To have the total income we have to deduct the tax that is calculated mutiplying the net income before tax by the taxe rate.