dolution

Shim Company reported sales revenue of 10 million for the year. The company uses FIFO for inventory estimation purposes. Cost of goods sold was 3.8 million. If the company had used LIFO, its cost of goods sold would have been 4.5 million. The company reported depreciation expense of 1.2 million on a straight-line basis. If the company had used accelerated depreciation, it would have reported depreciation expense of 1.7 million. Other expenses, excluding income tax, were 3 million. The company’s income tax rate was 30%.

Required

A. Compute Shim’s net income as reported and as it would have been reported if LIFO and accelerated depreciation had been used.

B. What effect would the choice of accounting methods have on the company’s cash flows from operating activities during the year if the same methods were used for both financial reporting and tax purposes?