The accountant at Paige Company is figuring out the difference in income taxes t

Question

The accountant at Paige 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 $5,460. The LIFO method will result in income before taxes of $4,935. What is the difference in tax that would be paid between the two methods? Question 49 options: 1) $525. 2) $225. 3) $158. 4) Cannot be determined from the information provided.

Explanation / Answer

The gross profit is calculated by subtracting the Opening inventory + Purchases

from Sales + Closing stock.In this case when FIFO is applied to calculate the closing inventory cost resulting the profit more by $158 ( 5460-4935) the tax for 158 @ 30%

is $225

Thus Corerct Option is 2

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