QUESTION 31 In the preparation of its financial statements the Tommy Corporation
ID: 2513631 • Letter: Q
Question
QUESTION 31
In the preparation of its financial statements the Tommy Corporation uses FIFO inventory costing. In the preparation of its federal tax return the Corporation uses LIFO inventory costing. For the year ended December 31 the following information was available from the Corporation's financial statements distributed to owners.
$800,000
$600,000
$120,000
$4,000
$29,000
$55,000
For the year ended December 31 the following information was available from the Corporation's federal income taxes return.
$800,000
$650,000
$120,000
$4,000
$12,000
$22,000
Calculate how much more cash the Corporation has available to use by using LIFO inventory costing for tax purposes instead of using FIFO.
$17,000
$33,000
$0
- $33,000
Sales$800,000
Cost of Goods Sold$600,000
Operating Expenses$120,000
Other Revenues and (Expenses)$4,000
Income Taxes Expense$29,000
Net Income$55,000
Explanation / Answer
Answer is a. $17,000
Explanation:
The difference in cash flows for two methods only lies in Tax paid. Therefore, the excess cash available for use when using LIFO is computed as follows:
Tax computed as per FIFO: $29000
Less: Actually paid as per LIFO: $12000
Excess cash available: $17000
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