Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change? Lewis Corporation had traditionally used the FIFO method of inventory valuation. You are giventhe information shown in Exhibit 1 on transactions during the year affecting Lewis's inventoryaccount. (The purchases are in sequence during the year. The company uses a periodic inventorymethod.)EXHIBIT 1: Inventory Transactions 2009-20112009Beginning balance1,840cartons @$20.00Purchases600 cartons @20.25cartons@21.00800400 cartons @21.25cartons @21.502002,820 cartons @Sales34.00Beginning balance1,020cartonsPurchases700 cartons @ 21.50700 cartons @ 21.50cartons @ 22.007001,000 cartons @22.25Sales3,080 cartons @35.751,040 cartonsBeginning balancePurchases1,000 cartons @22.50700 cartons (a)22.75700 cartons a23.00700 cartons(a)23.50Sales2,950 cartons(a)35.7520102011

FIFO Method- The FIFO method of costing presupposes that assets with old costs are reflected in the…

Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?

Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively.What is MNINK’s WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.)
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