Chapter 8, Problem 8.19E

LIFO liquidation

• LO8–1, LO8–4, LO8–6

The Reuschel Company began 2018 with inventory of 10,000 units at a cost of $7 per unit. During 2018, 50,000 units were purchased for $8.50 each. Sales for the year totaled 54,000 units leaving 6,000 units on hand at the end of 2018. Reuschel uses a periodic inventory system and the LIFO inventory cost method.

Required:

1. Calculate cost of goods sold for 2018.

2. From a financial reporting perspective, what problem is created by the use of LIFO in this situation? Describe the disclosure required to report the effects of this problem.