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The accountant at Patton Company has determined that income before income taxes amounted to $11,000 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $900 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?
a. $11.900
b. $14,000
c. $8,000
d. $10,100

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Parrain

Answer: b. $14,000

Explanation:

Taxes are 30%. If the LIFO amount will result in $900 more being paid in taxes then that means that $900 is 30% of the increase in income from LIFO.

Increase is therefore;

900 = x * 30%

x = 900/30%

x = $3,000

Income before tax using LIFO;

= FIFO income + increase in income

= 11,000 + 3,000

= $14,000

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