Homework Answers
Ending Inventory of 2021 would have been $16 million higher if FIFO had been used.
Higher ending inventory means lower cost of goods sold and higher income. Hence, if FIFO had been used, income of 2021 would have been higher by $16 million.
Income tax rate = 25%
Increase in Income tax expense = Increase in Income x Income tax rate
= 16 x 25%
= $4 million
Increase in net income = Increase in income - Increase in Income tax expense
= 16 - 4
= $12 million
Hence, if FIFO had been used, its reported net income for 2021 would have been $12 million higher if it had used FIFO rather than LIFO for its financial statements.
Fourth option is the correct option.
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