Textbook Problem

LIFO Liquidation Profit Hammond Company adopted LIFO when it was formed on January 1, 2017. Since then, the company has had the following purchases and sales of its single inventory item:

In December 2020, the controller realized that because of an unexpected increase in demand, the company had sold 22,000 units but had purchased only 19,000 units during the year. In 2020, each unit had been sold for $19, and each unit purchased had cost $10. The income tax rate is 21%.

Required:

1. 1. Next Level If Hammond makes no additional purchases in 2020, how much LIFO liquidation profit will it report?
2. 2. Prepare the appropriate annual report disclosures for 2020.
3. 3. Next Level if Hammond purchases an additional 7,000 units in December 2020, how much income tax will the company save?
4. 4. Next Level If Hammond purchases the additional 7,000 units, how much income tax has the company saved over the 4-year period by using LIFO instead of the FIFO cost flow assumption?