An annual report for International Paper Company included the following note:
The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories . . . If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $293 million and $290 million at December 31, 2017, and 2016, respectively.
For the year 2017, International Paper Company reported net income (after taxes) of $2,144 million. At December 31, 2017, the balance of International Paper Company’s retained earnings account was $6,180 million.
Required:
1. Determine the amount of net income that International Paper would have reported in 2017 if it had used the FIFO method (assume a 30 percent tax rate).
2. Determine the amount of retained earnings that International Paper would have reported at the end of 2017 if it always had used the FIFO method (assume a 30 percent tax rate).
3. Use of the LIFO method reduced the amount of taxes that International Paper had to pay in 2017 compared with the amount that would have been paid if International Paper had used FIFO. Calculate the amount of this reduction (assume a 30 percent tax rate).
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