Given the following financial statements for a retailer firm:

Inventories have been evaluated under LIFO assumption. Under FIFO, inventories would be eighty and sixty higher in 2018 and 2017, respectively.

a. What would gross profit have been in 2018 had the firm used the FIFO assumption? Show your work.

b. How many taxes did the firm save in 2018 because of the LIFO assumption?

c. Under which method (FIFO or LIFO) is it easier to manipulate net profit? Why? What is/are the lever(s) managers have in order to do so?

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Balance sheets ($1000) 2018 2017 Assets Cash 52 40 Accounts receivable 156 143 Inventories 302 285 Fixed assets 290 282 TOTAL 800 750 Equities Accounts payable 85 92 Debt 190 222 Equity 525 436 TOTAL 800 750 Income statements ($1000) 2018 2017 Revenue 1,100 1,000 Cost of goods sold 600 550 Gross profit 500 450 SGA expenses 210 200 Depreciation 85 80 Interest 24 22 EBT 181 148 Taxes 72 59 Net profit 109 89