In: Accounting
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?
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 |