Question

Required information Problem 5-30 (LO 5-1) (The following information applies to the questions displayed below.) Part 2 of 2 ATW Corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the current year was $7,000,000. If ATW had been using the LIFO method of accounting for its inventory, its beginning inventory would have been $7,000,000 and its ending inventory would have been $5,500,000. points Problem 5-30 Part b Print b. Why would ATW use the FIFO method of accounting if doing so causes it to pay more taxes on a present value basis? (Note that the tax laws don't allow corporations to use the LIFO method of accounting for inventory unless they also use the LIFO method of accounting for inventory for book purposes.) Increase financial reporting income O Decrease financial reporting income O FIFO method is easier to compute

Answer 1

Hi

Let me know in case you face any issue:

Answer is highlighted in yellow: Solution: Increase financial reporting income Answer: Explanation: Because, as per detail given, using FIFO method will result a bigger value of ending inventory than on using LIFO method. That mean lower cost of goods sold has been recorded which will finally result in a higher net income and more income tax.