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LIFO liquidation• LO8–1, LO8–4, LO8–6The 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.

Solution Preview

Solution:

Under the LIFO method, the inventory purchased last with higher price will be sold first.

Cost of Goods Sold - LIFO

Details

Number of Units

Rate per Unit ($)

Total Cost ($)

(A)

(B)

(A) × (B)

2016 Purchase

50,000

8.50

425,000

Beginning Inventory

4,000

7.00

28,000

Cost of Goods Sold

54,000

453,000

Table (1)

Therefore, the amount of cost of goods sold in LIFO method is $453,000.

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