LIFO Liquidation
During July, Laesch Company, which uses a perpetual inventory system, sold 1,240 units from its LIFO-based inventory, which had originally cost $18 per unit. The replacement cost is expected to be $27 per unit.
Required
Please respond to the following two independent scenarios as requested.
a. Case 1: In July, the company is planning to reduce its inventory and expects to replace only 900 of these units by December 31, the end of its fiscal year.
(1) Prepare the entry in July to record the sale of the 1,240 units.
(2) Discuss the proper financial statement presentation of the valuation account related to the 1,240 units sold.
(3) Prepare the entry for the replacement of the 900 units in September at an actual cost of $31 per unit.
b. Case 2: In July, the company is planning to reduce its inventory and expects to replace only
300 of its units by December 31, the end of its fiscal year.
(1) Prepare the entry in July to record the sale of the 1,240 units.
(2) In December, the company decided not to replace any of the 1,240 units. Prepare the entry required on December 31 to eliminate any valuation accounts related to the inventory that will not be replaced.
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