Question

Taylor Corporation has used a periodic inventory system and the LIFO cost method since its inception in 2011. The company began 2018 with the following inventory layers (listed in chronological order of acquisition):

16,500 units @ $10	$	165,000
21,500 units @ $15		322,500
Beginning inventory	$	487,500

During 2018, 43,000 units were purchased for $20 per unit. Due to unexpected demand for the company's product, 2018 sales totaled 53,000 units at various prices, leaving 28,000 units in ending inventory.

Required:
1. Calculate cost of goods sold for 2018.
2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2018 financial statements. Assume an income tax rate of 30%.
3. If the company decided to purchase an additional 10,000 units at $20 per unit at the end of the year, how much income tax currently payable would be saved?

Answer 1

1) Calculation of Cost of Goods Sold :-

Particulars	Amount($)
Beginning Inventory	487500
Add : Purchase (43000*$20)	860000
Cost of Goods Available for Sale	1347500
Less : Ending Inventory (Working Note)	(337500)
Cost of Goods Sold	1010000

Working Note :- Cost of Ending Inventory

Date	Units	Per Unit Cost	Total Cost
Beg. Inventory	16500	$10	$165000
Beg. Inventory	11500	$15	$172500
Total			$337500

2) LIFO Liquidation Profit :-

Particulars	Amount($)
Sales Unit (53000*$20)	1060000
Less : LIFO Cost of Goods Sold	(1010000)
LIFO Liquidation Profit Before Tax	50000
Less : Tax ($50000*30%)	(15000)
LIFO Liquidation Profit	35000

3) If Company Decided to an additional purchase then Income tax currently payable would be seved :-

= $50000 * 30%

= $15000