Question

In: Accounting

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

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): 

10,000 units @ $15..........................$150,000 

15,000 units @ $20............................300,000 

Beginning inventory........................$450,000 

During 2021, 30,000 units were purchased for $25 per unit. Due to unexpected demand for the company’s product, 2021 sales totaled 40,000 units at various prices, leaving 15,000 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 10,000 units at $25 per unit at the end of the year, how much income tax currently payable would be saved?

Solutions

Expert Solution

1. Cost of goods sold for 2021
   
Latest purchase 30000*25 $750000
Previous purchase 10000*20 $200000
Cost of goods sold $950000

 

2. Unit Included in cost of goods sold are 9,000 units from beginning inventory purchased at $20 that have now been liquidated.
If the company had purchased at least 40,000 units, no liquidation would have occurred. Then cost of goods sold would have been = 40,000 units * $25 per unit = $ 1,000,000 instead of$ 950,000.
The difference between these two cost of goods sold = $1000000 - 950,000 = $50000 which is the before tax LIFO liquidation profit.
net effect of the liquidation is to increase net income =50,000*(1-0.25%) = $37500

               

3. If the company decided to purchase an additional 10,000 units at $25 per unit at the end of the year,
Income tax currently payable would be saved =10000*(25-20)*25% = $12500
1. Cost of goods sold for 2021
   
Latest purchase 30000*25 $750000
Previous purchase 10000*20 $200000

Junaid answered 1 year ago
Next > < Previous

Related Solutions

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...
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...
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): 10,000 units @ $15 $ 150,000 15,000 units @ $20 300,000 Beginning inventory $ 450,000 During 2021, 30,000 units were purchased for $25 per unit. Due to unexpected demand for the company’s product, 2021 sales totaled 40,000 units at various...
Cansela Corporation reports inventory and cost of goods sold based on calculations from a LIFO periodic...
Cansela Corporation reports inventory and cost of goods sold based on calculations from a LIFO periodic inventory system. The company began 2021 with inventory of 7,000 units of its only product. The beginning inventory balance of $88,000 consisted of the following layers:    2,500 units at $10 per unit = $ 25,000 4,500 units at $14 per unit = 63,000 Beginning inventory $ 88,000    During the three years 2021–2023 the cost of inventory remained constant at $16 per unit....
Taylor Corporation has used a periodic inventory system and the LIFO cost method since its inception...
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): 15,000 units @ $10 $ 150,000 20,000 units @ $15 300,000 Beginning inventory $ 450,000 During 2018, 40,000 units were purchased for $20 per unit. Due to unexpected demand for the company's product, 2018 sales totaled 49,000 units at various prices, leaving 26,000 units in ending inventory....
Calculation of Cost of Goods Sold: Periodic Inventory System Prepare the cost of goods sold section...
Calculation of Cost of Goods Sold: Periodic Inventory System Prepare the cost of goods sold section for Adams Gift Shop. The following amounts are known: Beginning merchandise inventory $27,050 Ending merchandise inventory 22,550 Purchases 77,125 Purchases returns and allowances 4,055 Purchases discounts 5,745 Freight-in 230 Adams Gift Shop Cost of Goods Sold Cost of goods sold: $ $ $ $ $ Cost of goods sold $
Calculate cost of ending inventory and cost of goods sold using periodic FIFO, LIFO, and Weighted...
Calculate cost of ending inventory and cost of goods sold using periodic FIFO, LIFO, and Weighted Average Cost methods. Description # of units Cost per unit Beginning inventory: 20 20 Jan.15 Purchase: 22 27 Jan. 20 Sale 10 blank Jan.25 Purchase 18 25 Jan.28 Sale   15 blank
PART 1: The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method...
PART 1: The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 24,000 units consisted of the following, listed in chronological order of acquisition: 14,000 units at a cost of $9.00 per unit = $126,000 10,000 units at a cost of $10.00 per unit = 100,000 During 2021, inventory quantity declined by 14,000 units. All units purchased during 2021 cost $13.00 per unit. Required: Calculate the before-tax LIFO liquidation...
In a periodic inventory system, the formula used in computing the cost of goods sold may...
In a periodic inventory system, the formula used in computing the cost of goods sold may be summarized as follows: Select one: A. Beginning inventory + purchases - net sales. B. Balance in the Cost of Goods Sold account, less the balance in the Inventory Shrinkage account. C. Beginning inventory + purchases - ending inventory. D. Ending inventory + purchases - net sales.
in a periodic inventory system, cost of goods sold is recorded as each same of merchandise...
in a periodic inventory system, cost of goods sold is recorded as each same of merchandise occurs true/false
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT