Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8, Problem 8.10P
LIFO liquidation
• LO8–4, LO8–6
Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2018 with inventory of 4,500 units of its only product. The beginning inventory balance of $64,000 consisted of the following layers:
During the three years 2018–2020 the cost of inventory remained constant at $18 per unit. Unit purchases and sales during these years were as follows:
| Purchases | Sales | |
| 2018 | 10,000 | 11,000 |
| 2019 | 13,000 | 14,500 |
| 2020 | 12,000 | 13,000 |
Required:
1. Calculate cost of goods sold for 2018, 2019, and 2020.
2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for each of the three years.
3. Prepare the company’s LIFO liquidation disclosure note that would be included in the 2020 financial statements to report the effects of any liquidation on cost of goods sold and net income. Assume any liquidation effects are material and that Cansela’s effective income tax rate is 40%. Cansela’s 2020 financial statements include income statements for two prior years for comparative purposes.
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The Foxworthy Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 40,000 units consisted of the following, listed in chronological order of acquisition: 24,000 units at a cost of $6.00 per unit = $144,000 16,000 units at a cost of $7.00 per unit = 112,000 During 2018, inventory quantity declined by 18,000 units. All units purchased during 2018 cost $8.00 per unit. -Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note assuming the amount determined is material.
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Chapter 8 Solutions
Intermediate Accounting
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