Question

An annual report for International Paper Company included the following note:

The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories . . . If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $293 million and $290 million at December 31, 2017, and 2016, respectively.

For the year 2017, International Paper Company reported net income (after taxes) of $2,144 million. At December 31, 2017, the balance of International Paper Company’s retained earnings account was $6,180 million.

1. Determine the amount of net income that International Paper would have reported in 2017 if it had used the FIFO method (assume a 30 percent tax rate)

2. Determine the amount of retained earnings that International Paper would have reported at the end of 2017 if it always had used the FIFO method (assume a 30 percent tax rate).

3. Use of the LIFO method reduced the amount of taxes that International Paper had to pay in 2017 compared with the amount that would have been paid if International Paper had used FIFO. Calculate the amount of this reduction (assume a 30 percent tax rate).

Answer 1

There are many methods to value the inventory. FIFO method and LIFO methods are also for the valuation of the inventory. Their imapact on the net income can be analyzed by the following:
1. Amount Net of Nel Income Pucome GA per (After Tau) FIFO $2144 nullen Addt ? Income Tan charged 2144 x 1000 & 30%. T in $918. 857 rules Add to closing Inventry Incrase as ber FIFO T Lesst Openy Inventory Tucres asbu FIFO 13062.85 7 nw 293 nulle (290 nelle) 3065.857 null 1919.757 null 2146. to rulle Income before Tanes. Income Tan @ 30 y. Net Income

2. Balance auf Refaum early Os on 31st Dec 2017 $6180 nullen Lesso Income of C.4. Added ($ 2144 nellen) Obening Balance of Relaimed earung - S1st Dec 2016 $ 4036 nullon Addo Net Income vuder El Fo Methed $2148. lo nullo $ 6182. 1o will $919.757 nuler 3. Income Tan (If Inventory valued at FI FO) Хидше Таи lgp Inventory valued at LIFO) $ 918.887 hulle Net Increase it FI FO Method as per 0.90 hulle, This of Income Inventory Tau valued at reduced by LIFO Methed 0.90 million