Hi, I’m having lot of issues trying to understand this exercise (the answer is B):
What I did was the following:
YEAR 2014
- Find the FIFO Net Income by adjusting the Pretax Income ($266.87) by the increase in the LIFO reserve (FIFO Pre tax Income: US$586.87) and then apply the tax rate and get the FIFO Net Income of US$391.44.
- The Tax expense for the year is US$195.4265
- Adjust the balance sheet by adding the LIFO reserve of the year and substracting the tax expense paid, so I get FIFO Total Assets of $6.241.5735
- The new ROA would be 6.27%
Unfortunately, my total asset calculation is wrong 
and I don’t get why exactly. Acoording to the written answer the tax adjustment should be 33.3% × $867 = $288.7 (they explain this as the Cumulative tax saving: 2014 tax rate for total LIFO reserve)
Then, I was wondering if the FIFO Net Income is higher than the LIFO Net Income in $213.44 then increasing the Equity, why I just don’t add this amount to the Total Assets? in order to mantain the balance sheet equilibrium?
Hope someone can help me to understand this. Thank you all!