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Taylor Corporation reports inventory and cost of goods sold based on calculations from a LIFO periodic...

Taylor Corporation reports inventory and cost of goods sold based on calculations from a LIFO periodic inventory system. The company’s records under this system reveal the following inventory layers at the beginning of 2021 (listed in chronological order of acquisition):

15,000 units @ $10 $ 150,000
20,000 units @ $15 300,000
Beginning inventory $ 450,000


During 2021, 40,000 units were purchased for $20 per unit. Due to unexpected demand for the company's product, 2021 sales totaled 49,000 units at various prices, leaving 26,000 units in ending inventory.

Required:
1. Calculate the amount to report for cost of goods sold for 2021.
2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2021 financial statements. Assume an income tax rate of 25%.
3. If the company decided to purchase an additional 9,000 units at $20 per unit at the end of the year, how much income tax currently payable would be saved?

Solutions

Expert Solution

1.

In the book of taylor Corporation
As per LIFO (LAST IN FIRST OUT METHOD)
Date Purchase Sale Balance
Units Rate Value Units Rate Value Units Rate Value
OPENING :-
2021 15000 10 150000
2021 20000 15 300000
During the year : During the year :
40000 20 800000 40000 20 800000
9000 15 135000
15000 10 150000
11000 15 165000
26000 315000

1.

LIFO Method rule Last purchased will be Sale first
Cost of Goods Sold will be (As per LIFO method )
49000 19.08 935000

2..

2
Note :- While calculating LIFO liquidation profit
there is not specified price of selling so will
take as per LIFO method.
Sales 935000
purchase 800000
tax Rate 25% 33750
101250

3.

In the book of taylor Corporation
As per LIFO (LAST IN FIRST OUT METHOD)
Date Purchase Sale Balance
Units Rate Value Units Rate Value Units Rate Value
OPENING :-
2021 15000 10 150000
2021 20000 15 300000
During the year : During the year :
40000 20 800000
2021
Ending the Year :
9000 20 180000 49000 20 980000 15000 10 150000
20000 15 300000
35000 450000

3

Note :- Full amount of tax would be saved because cost price method state that equal to the selling price

Sale 980000 purchase 980000 = Profit 00.00 so not tax.
Sales 0
purchase 0
tax Rate 25% 0
0

ekkarill92 answered 2 years ago
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