Question

The accountant at Novak Corp. has determined that income before income taxes amounted to $13400 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $1100 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?

Answer 1

The correct answer is $17,066.67.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Income before Income tax, FIFO = $13,400

Tax rate = 30%

So, Income tax amount, FIFO = $13,400 × 30% = $4,020

So, Tax amount, LIFO = $4,020 + $1,100 = $5,120

We can calculate the income before taxes by using following method,

Income before taxes, LIFO = $5,120 ÷ 30%

= $17,066.67