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The accountant at Sheridan Company has determined that income before income taxes amounted to $6400 using...

The accountant at Sheridan Company has determined that income before income taxes amounted to $6400 using the FIFO costing assumption. If the income tax rate is 25% and the amount of income taxes paid would be $320 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?

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Answer #1

Answer:

Income before income taxes using FIFO = $6,400

Income tax rate = 25%

So, income tax paid if FIFO costing assumption is adopted = $6,400 * 25% = $1,600

If LIFO assumption were used, income tax paid will be greater by $320.

Which means, income tax paid if LIFO was taken = $1,600 + $320 = $1,920

CALCULATION OF INCOME BEFORE TAXES UNDER LIFO ASSUMPTION

Income tax paid $1,920
Income tax rate 25%
Income($1,920 / 0.25) $7,680

So, the income before taxesunder LIFO assumption is $7,680

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