Lanier Company began operations on January 1, 2012, and uses the FIFO method in
ID: 2364666 • Letter: L
Question
Lanier Company began operations on January 1, 2012, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
Final Inventory 2012 2013
FIFO $320,000 $360,000
LIFO 240,000 300,000
Net Income (computed under the FIFO method)500,000 550,000
Based upon the above information, a change to the LIFO method in 2013 would result in net income for 2013 of
a. $490,000.
b. $550,000.
c. $570,000.
d. $610,000.
Equipment was purchased at the beginning of 2010 for $340,000. At the time of its purchase, the equipment was estimated to have a useful life of six years and a salvage value of $40,000. The equipment was depreciated using the straight-line method of depreciation through 2012. At the beginning of 2013, the estimate of useful life was revised to a total life of eight years and the expected salvage value was changed to $25,000. The amount to be recorded for depreciation for 2013, reflecting these changes in estimates, is
a. $20,625.
b. $33,000.
c. $38,000.
d. $39,375.
Unusual loss $ 74,000 Extraordinary loss 202,000 Gain on disposal of equipment 16,000 Change in accounting principle increasing prior year's income 106,000Explanation / Answer
1.A is the answer
income tax expense=(464,000-74,000+16,000)*0.4
income tax expense=$162,400
2.B is the answer
Earnings before Taxes =[350,000+50,000(1-0.3)]/(1-0.3)
Earnings before Taxes =$550,000
3.A is the answer
Net Income=550,000- ($360,000 – $300,000)
Net income =490,000
4.B is the answer
$340,000-[($340,000-40,000)/6]*3=190,000
Depreciation=$190,000 – $25,000) / (8 – 3)
Depreciation= $33,000
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