You are a financial analyst currently reviewing the financial statements of Danner International and Brady Enterprises, two companies of similar size within the same industry. Net incomes of $39,300 and $42,700 were reported for 2017 by Danner and Brady, respectively. After a thorough comparison of the accounting methods used by the two companies, you find that they are similar except for the inventory cost fl ow assumption€”Danner uses FIFO and Brady uses LIFO. You conduct a further review of Brady€™s footnotes and discover the following. Inventories declined during 2017, causing a LIFO liquidation, which accounted for $8,000 of the before-tax net income reported in 2017.

Brady€™s effective tax rate is 35 percent.

REQUIRED:
a. Restate Brady€™s net income assuming there was no LIFO liquidation in 2017. How does the restated amount compare to Danner€™s net income?
b. Restate Brady€™s 2017 reported net income as if the company had always been a FIFO user. Is Brady€™s restated reported income higher or lower than Danner€™s reported net income? Explain.
c. As of the end of 2017, how much accumulated income tax had Brady saved due to its choice of LIFO instead of FIFO? How much as of the end of 2016? Does LIFO save taxes in every year? Explain.
d. Would it be advisable for Brady to change its cost fl ow assumption from LIFO to FIFO? Discuss.

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2017 2016 Inventories at current cost Less: Adjustment to LIFO $42,400 $36,200 3,500 4,800 Inventories at LIFO $32,700 $37,600