Question

Hazelton Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2018 with $84,100 in inventory of its only product. The beginning inventory consisted of the following layers:

4,700 units at $7 per unit	$	32,900
6,400 units at $8 per unit		51,200
Total	$	84,100

During 2018, 6,700 units were purchased at $9 per unit and during 2019, 8,400 units were purchased at $10 per unit. Sales, in units, were 8,400 and 14,800 during 2018 and 2019, respectively.

Required:

1. Calculate cost of goods sold for 2018 and 2019.

2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2018 and 2019.

-Calculate cost of goods sold for 2018 and 2019.

-Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2018 and 2019.?-

Answer 1

Answer:

Part 1

Calculation of Cost of Goods sold

2018

Units sold = 8400

Units purchased = 6700 @ $9 per unit

Balance units after adjusted by purchase of 2018 = 8400-6700 = 1700units

Cost of goods sold = [6700*9 +1700 *8]

                               = $73,900

2019

Units sold = 14800

Units purchased = 8400 @ $10 per unit

Balance units after adjusted by purchase of 2019 = 14800-8400 = 6400 units

Balance units in second layer of beginning inventory after 2018 = 6400-1700 = 4700units

Cost of goods sold = [8400*10 + 4700*8 +(14800-8400-4700) * 7]

                               = $1,33,500

Part 2

Calculation of LIFO liquidation profit/loss

2018

Units liquidated = 8400 – 6700 = 1700 units

Before tax liquidation profit = 1700* ($9 - $8)

                                                = $1700

2019

Units liquidated = 14800 – 8400 = 6400units

Before tax liquidation profit = 4700 ($10- $8) + 1700 ($10 - $7)

                                                = $14500