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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. Computation of Cost of Goods Sold
beg Inventory $450,000.00
Add: Purchases (40000X20) $800,000.00
Less: Ending inventory
(w/ Note))		 -$315,000.00
Cost of goods sold $935,000.00
Computation of Ending Inevntory Value
Date Qty Cost/ Unit Tota;
Beg. Inv. 15000 $10 $150,000
Beg. Inv. (26000-15000) 11000 $15 $165,000
Total 26000 $315,000
2. Computation of LIFO Liquidation Profit
49000@20 $980,000
Less: LIFO cost of goods sold $935,000
LIFO liquidation profit before tax $45,000
Less : Tax @ 25% $11,250
LIFO liquidation profit $33,750
3) Income Tax Currently will be saved ( 45000X25%) i.e. $11250

ekkarill92 answered 3 years ago
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