Taylor Corporation has used a periodic inventory system and the LIFO cost method

Question

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) 18,500 units $20 23,500 units@ $25 Beginning inventory $370,000 587,500 $957,500 During 2018, 47,000 units were purchased for $30 per unit. Due to unexpected demand for the company's product, 2018 sales totaled 58,000 units at various prices, leaving 31,000 units in ending inventory. Required 1. Calculate cost of goods sold for 2018. 2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2018 financial statements Assume an income tax rate of 40%. 3. If the company decided to purchase an additional 11,000 units at $30 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

Explanation / Answer

Ans. 1 Calculation of cost of goods sold: Beginning inventory 957500 Add: purchases (47000*30) 1410000 Cost of goods available for sale 2367500 Less: Ending inventory 682500 Cost of Goods Sold 1685000 *Ending inventory : Beginning inventory (18500*20) 370000 Beginning inventory (12500*25) 312500 Total (31000) 682500 Ans. 2 Calculation of LIFO liquidation profit: Sales (58000 * 30) 1740000 Less: LIFO cost of goods sold 1685000 LIFO liquidation profit before tax 55000 Less: Tax @ 40% 22000 LIFO liquidation profit 33000 [ we asume that all units of cost of goods sold are purchased at the year 2018 price.] Ans. 3 Calculation of income tax payable: Tax @40% of 55000 (lifo liquidation profit before tax) 55000 * 40% 22000 (calculated above in Ans. 2)

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