whew1110

LIFO Reserve represents profits not recognized and taxes that were not paid (because the higher costs were disguised).
1.) Add the LIFO reserve to the Inventory Balance
2.) (1.4)(LIFO Reserve) = the profits made, but not recorded.
3.) (.4)(LIFO Reserve) = the tax liability
The numerator is as follow:
(Total Assets) + (LIFO Reserve)  (Tax Liability)
The denominator is as follows:
(Value of Common Stock) + (Retained Earnings) + (Aftertax LIFO Reserve Profits)
$1,000,000 + $1,500,000 + $540,00= 3,040,000
They definitely gave too much information  Jan 31 LIFO Reserve and Inventory  to throw off the calculation, which never helps
“The change in equity equals to the aftertax rate of change COGS” is right and the same as the change in retained earnings. LIFO disguises COGS as to be higher, which results in a lower retained earnings. So a change in pretax COGS be the same as pretax retained earnings…
hopefully that helps some