Question

The accountant at Blackjack 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 30% and the FIFO method will result in income before taxes of $3,640. The LIFO method will result in income before taxes of $3,290. What is the difference in tax that would be paid between the two methods

Answer 1

Answer: $105

Step-by-step explanation:

Taxes under LIFO:

= LIFO income * Tax rate

= 3,290 * 30%

= $987

Taxes under FIFO:

= FIFO income * Tax rate

= 3,640 * 30%

= $1,092

Difference:

= FIFO tax - LIFO tax

= $105