Question

ULUIL.UUIJ PLJ JIUI JJ (20 LUMIPICILI 11 ULUIL. 12 IU, JULIJ PLJ S6-3 (similar to) Question Help Eleanor Copy Center sells laser printers and supplies. Eleanor Copy Center started the year with 90 containers of ink (average cost of $9.30 each, FIFO cost of $8.70 each, LIFO cost of $7.90 each). During the year, Eleanor Copy Center purchased 720 containers of ink at $10.20 and sold 630 units for $21.50 each. Eleanor Copy Center paid operating expenses throughout the year, a total of $3,750. Eleanor Copy Center's income statement-excluding the effects of income tax under each of the average-cost, FIFO, and LIFO inventory costing methods- is given. (Click the icon to view the income statement.) Eleanor Copy Center is a corporation subject to a 40% income tax. Compute Eleanor Copy Center's income tax expense under the average, FIFO, and LIFO inventory costing methods. Which method would you select to (a) maximize income before tax and (b) minimize income tax expense? (Round your answer to the nearest whole dollar.) Eleanor Copy Center Income Statement Year Ended December 31 Average Cost 13,545 $ 6,363 FIFO Sales revenue Cost of goods sold Gross profit L IFO 13,545 $ 13,545 6,291 6,426 7,182 $ 3,750 Operating expenses 7,254 $ 7,119 3,750 3,750 3,504 $ 3,369 Net income before tax 3,432 $ Income tax expense

Answer 1

Solution:

	Average Cost	FIFO	LIFO
Net income Before tax	3432	3504	3369
*Tax rate	40%	40%	40%
Income tax expense	1373	1402	1348

(a) Maximize Income before tax = FIFO method

(b) Minimize Income tax expense = LIFO method