The Anshul Corporation used an inventory method for its tax return that was diff
ID: 2398320 • Letter: T
Question
The Anshul Corporation used an inventory method for its tax return that was different from the one it used when it prepared the income statement it distributed to its owners. Some of the differences between its tax return and the income statement it distributed to owners are shown below.
Tax Return
Owners' Income Statement
Sales
$700,000
$700,000
Cost of goods sold
$330,000
$300,000
Operating expenses
$370,000
$400,000
Income taxes expense
$129,500
$140,000
Net income
$240,500
$260,000
Determine how much more or less cash the company has available by using a different inventory method for tax purposes than it used when it prepared the income statement distributed to its owners.
$19,500 less
$19,500 more
$10,500 less
$10,500 more
Tax Return
Owners' Income Statement
Sales
$700,000
$700,000
Cost of goods sold
$330,000
$300,000
Operating expenses
$370,000
$400,000
Income taxes expense
$129,500
$140,000
Net income
$240,500
$260,000
Explanation / Answer
In the given case Anshul Corporation has used different inventory method which had saved the taxes only, as adopting different method for inventory valuation does not increase or decreasing in the cash expenditure. However adopting different method will lead us to different income and tax will be paid accordingly.
Hence in this case Anshul Corporation by adopting different method of inventory valuation has saved only in taxes which as a result increased the cash by $ 10500.
Since the problem wants a comparison in respect of valuation used for tax purposes, the answer is option d i.e. $ 10500 more.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.