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Selected information from Oldtown, Inc.’s financial statements for the year ended December 31, 2004 included the following (in $):
|
Cash |
1,320,000 |
|
Accounts Payable |
1,620,000 |
|
Accounts Receivable |
2,430,000 |
|
Deferred Tax Liability |
715,000 |
|
Inventory |
6,710,000 |
|
Long-term Debt |
15,230,000 |
|
Property, Plant & Equip. |
12,470,000 |
|
Common Stock |
1,000,000 |
|
Total Assets |
22,930,000 |
|
Retained Earnings |
4,365,000 |
|
|
|
|
Total Liabilities & Equity |
22,930,000 |
|
Sales |
15,000,000 |
|
|
|
|
Net Income |
3,000,000 |
|
|
|
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LIFO Reserve at Jan. 1 |
1,620,000 |
|
|
|
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LIFO Reserve at Dec. 31 |
1,620,000 |
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Oldtown uses the last in, first out (LIFO) inventory cost flow assumption. The tax rate was 40%. If Oldtown changed from LIFO to first in, first out (FIFO) for 2004, net profit margin would:
A. decrease from 20.0 to 13.5%.
B. decrease from 20.0 to 16.8%.
C. remain unchanged at 20.0%.
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