Super Toys Company reported $355,000 as its ending inventory and $1,322,500 as cost of goods sold for Year 2 using the LIFO method. The company’s LIFO reserve totaled $43,100 and $36,250 for Year 2 and Year 1, respectively. Sales amounted to $2,250,000 and other operating costs totaled $780,000 for Year 2. Super Toys Company has a 34% effective income tax rate.

A. If Super Toys Company had used FIFO instead of LIFO, how much would it have reported for its cost of goods sold?

B. How much did Super Toys save in income taxes as a result of using LIFO to value its inventories?

C. Prepare an income statement for Year 2 for the Super Toys Company assuming FIFO is used.

D. Explain why Super Toys might prefer to use FIFO for financial statement reporting to shareholders rather than LIFO.

Answer rating: 100% (QA)

A LIFO reserve can be explained as LIFO Reserve FIFO inventory Value LIFO inventory Val... View the full answer