Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?
Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter7: Inventories: Cost Measurement And Flow Assumptions
Section: Chapter Questions
Problem 11P: Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015....
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Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?
Transcribed Image Text:Lewis Corporation had traditionally used the FIFO method of inventory valuation. You are given
the information shown in Exhibit 1 on transactions during the year affecting Lewis's inventory
account. (The purchases are in sequence during the year. The company uses a periodic inventory
method.)
EXHIBIT 1: Inventory Transactions 2009-2011
2009
Beginning balance
1,840
cartons @
$20.00
Purchases
600 cartons @
20.25
cartons
@
21.00
800
400 cartons @
21.25
cartons @
21.50
200
2,820 cartons @
Sales
34.00
Beginning balance
1,020
cartons
Purchases
700 cartons @ 21.50
700 cartons @ 21.50
cartons @ 22.00
700
1,000 cartons @
22.25
Sales
3,080 cartons @
35.75
1,040 cartons
Beginning balance
Purchases
1,000 cartons @
22.50
700 cartons (a)
22.75
700 cartons a
23.00
700 cartons
(a)
23.50
Sales
2,950 cartons
(a)
35.75
2010
2011
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