2 specific LIFO to FIFO pratice questions - explanation?

[gsauls4]

Hello - so I was recently given the following practice questions and the answers, but without the full answer explanation/methodology and work shown, which is what I am hoping someone can provide here. The questions are as follows:
The Smithsonian Co. uses the LIFO inventory costing method for inventories. Here is a summary of the company’s financial data for the year-ended Dec. 31, 20X8:
($ millions)
Net Sales $200
COGS $120
Pretax Income $40
Net Income $20
Inventory $350
Beginning LIFO reserve $30
Ending LIFO reserve $38
Total Assets $900
Retained Earnings $175
Question 1: Adjusting for FIFO, their new retained earnings would be…..?
Question 2: Adjusting for FIFO, their new net income would be……?
Thank you!!!

 

[CMLSML]

Both these questions are written by completely unprofessional people (presumably Kaplan per you).
1. Adjusting for FIFO means what???? If you mean that adjusting the reported financial statements such that they were prepared under FIFO would make more sense.
2. No tax rate info. So underlying presumption is that the tax rate implicit in the income statement you present (50%) is the applicable tax rate (not only for last year but also years before that).
Assuming T=50%, RE = 190 and NI = 24.

 

[S2000magician]

I agree with CMLSML.

 

[Harrogath]

Both these questions are written by completely unprofessional people (presumably Kaplan per you).
What you mean with “presumably Kaplan per you”, is it Kaplan books upprofessional?

 

[gsauls4]

Correction, reported net income should be $24, not $20 as I typed above. Also, I took the liberty of cutting the questions down to the main point, which is yes, moving from LIFO to FIFO.
Can you please expand on your answers? Like I said, I know what the right numbers should be, but I am more concerned about seeing the methodology behind arriving at those answers. Thank you.

 

[CMLSML]

Harrogath]</p> <p>

wrote:
Both these questions are written by completely unprofessional people (presumably Kaplan per you).
What you mean with “presumably Kaplan per you”, is it Kaplan books upprofessional?

i am not saying that. I am saying the questions that you presented were written very poorly. I thought that I read your original post stating that these were from Kaplan (I don’t see it now). If they are not, I take it back.

 

[sharky7]

How come you arrive at new RE=190? Shouldn’t we increase the old RE (175) by the NI increase (i.e. 4)?
Thanks!

 

[gsauls4]

Sorry - first, the original NI should be $24, not $20 as I mistakenly put at first. Therefore, the implied tax rate should be 40%. Thus, I get an increase in NI of $4.8million, so new NI now $28.8 million, and RE of $203.8mln.
I think I am doubting my answers because of the way the first question is posed, which says the answer is “closest to” and gives RE of $213mln, $198mln, and $152mln. Typically, I would expect the real answer to be closer that $5.8mln off so wondering if I am missing something here.
$28.8mln NI is closest to $29mln for the 2nd answer, which is correct and makes perfect sense.