LAN Corporation uses the LIFO inventory costing method to account for its inventory. In the most recent year, LAN had net sales of $4,000, cost of goods sold of $1,685, and operating expenses of $1,750. LAN is subject to a tax rate of 30%. Had LAN used the FIFO inventory costing method, its cost of goods sold for the year would have been $1,495.
Required
a. Prepare comparative income statements under LIFO and FIFO and identify the amount of taxes that LAN deferred in the current year by using LIFO rather than FIFO.
b. Explain why the term "tax deferral" is used in association with inventory costing methods rather than the term "tax savings”