Question

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): 10,500 units 510 15,500 units $15 Beginning inventory $105,000 232,500 $337,500 During 2021, 31,000 units were purchased for $20 per unit. Due to unexpected demand for the company's product, 2021 sales totaled 39,000 units at various prices, leaving 18,000 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 8,000 units at $20 per unit at the end of the year, how much income tax currently payable would be saved? 1. Cost of goods sold 2. LIFO liquidation profit 3. Income tax payable

Answer 1

ANSWER

1). Computation of Cost of Goods Sold
beg Inventory	$337,500.00
Add: Purchases (31,000X20)	$620,000.00
Less: Ending inventory (w/ Note))	-$217,500
Cost of goods sold	$740,000.00

Computation of Ending Inevntory Value
Date	Qty	Cost/ Unit	Tota;
Beg. Inv.	10,500	$10	$105,000
Beg. Inv. (18,000-10,500)	7,500	$15	$112,500
Total	18,000		$217,500

2). Computation of LIFO Liquidation Profit
39,000@20	$780,000
Less: LIFO cost of goods sold	$740,000
LIFO liquidation profit before tax	$40,000
Less : Tax @ 25%	$10,000
LIFO liquidation profit	$30,000

3) Income Tax Currently will be saved ( 40,000X25%) i.e. $10,000

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Answer 2

all answers are correct