Chapter 8, Problem 8.9P

LIFO liquidation

• LO8–4, LO8–6

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):

10,000 units @ $15	$150,000
15,000 units @ $20	300,000
Beginning inventory	$450,000

During 2018, 30,000 units were purchased for $25 per unit. Due to unexpected demand for the company’s product, 2018 sales totaled 40,000 units at various prices, leaving 15,000 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 10,000 units at $25 per unit at the end of the year, how much income tax currently payable would be saved?