Question

Sunland Company began operations on January 1, 2020, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:

Final Inventory 2020 2021
FIFO $350000 $ 390000
LIFO 270000 330000
Net Income (computed under the FIFO method) 530000 780000
Based on the above information, a change to the LIFO method in 2021 would result in net income for 2021 of:________.

Answer 1

$720,000

Step-by-step explanation:

Calculations of change in net income of 2021 due to change to LIFO method

Net income = Net income as per FiFO method - (Inventory as per FIFO - Inventory as per LIFO)

Net income = $780,000 - ($390,000 - $330,000)

Net income = $780,000 - $60,000

Net income = $720,000

Therefore, a change to the LIFO method in 2021 would result in net income for 2021 of $720,000.