At the beginning of 2011, Big Star Corporation decided to change from the LIFO t

Question

At the beginning of 2011, Big Star Corporation decided to change from the LIFO to the FIFO inventory cost flow assumption. The following data was made available:

Reported Income before

Income Taxes

Excess of LIFO COGS over FIFO COGS

Tax rate is 30%

The balance in Retained Earnings is the sum of the company's reported income amount.

Big Star revenues for 2010 and 2011 were 225,000 and 230,000 respectively.

Big Star operating expenses for 2010 and 2011 were 32,000 and 40,000 respectively.

CALCULATE COGS AND INVENTORY. PLEASE SHOW YOUR WORK

Year

Reported Income before

Income Taxes

Excess of LIFO COGS over FIFO COGS

Adjusted Income Before income taxes Prior to 2010 240,000 42,000 282,000 2010 80,000 18,000 98,000 2011 70,000 16,000

Explanation / Answer

Adjusted income before income tax:

2010= 98000

2011 = 86000

2010 2011

Revenue 225000 230000

- COGS 95000 104000

= gross profit 130000 126000

- operating expenses 32000 40000

income before tax 98000 86000

- taxes@ 30% 29400 25800

Net income 68600 60200

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