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a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate) $0 X increase to after tax profit ✔ b. What is the accounting explanation for LIFO liquidation?

a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate) $0 X increase to after tax profit ✔ b. What is the accounting explanation for LIFO liquidation?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject: acc

Computing and Analyzing a LIFO Liquidation Chide Inc changed its inventory method to LIFO effective January 1. During December, Chide's storage facility was shut down due to a strike resulting in a drastic reduction in inventory. The fo data are available Units Unit Cost $1.00 1.25 Beginning inventory (Base layer of LIFO-January 11 28.000 Inventory purchases during the year 630,000 658,000 Total cost of goods sold available for sale Goods sold (valued on a UFO basis) from Purchases layer Base inventory Layer Total cost of goods sold Ending inventory (December 31 630.000 14.000 644.000 14,000 1.25 1.00 a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate) $0 X Increase to after tax profit b. What is the accounting explanation for LIFO liquidation? Due to lower cost inventory matched to current selling price which has increased over time.
Transcribed Image Text:Computing and Analyzing a LIFO Liquidation Chide Inc changed its inventory method to LIFO effective January 1. During December, Chide's storage facility was shut down due to a strike resulting in a drastic reduction in inventory. The fo data are available Units Unit Cost $1.00 1.25 Beginning inventory (Base layer of LIFO-January 11 28.000 Inventory purchases during the year 630,000 658,000 Total cost of goods sold available for sale Goods sold (valued on a UFO basis) from Purchases layer Base inventory Layer Total cost of goods sold Ending inventory (December 31 630.000 14.000 644.000 14,000 1.25 1.00 a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate) $0 X Increase to after tax profit b. What is the accounting explanation for LIFO liquidation? Due to lower cost inventory matched to current selling price which has increased over time.
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