![INTERMEDIATE ACCOUNTING(LL)-W/CONNECT](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260216141/9781260216141_smallCoverImage.gif)
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?
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 8 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- 8 Goldmeyer Company has used the FIFO method of inventory valuation since it began operations in 2021. Goldmeyer decided to change to the average cost method for determining inventory costs at the beginning of 2024. The following schedule shows year-end inventory balances under the FIFO and average cost methods: eBook 101 Hint D Print References Year 2021 2022 2023 FIFO $46,200 81,600 87,800 Required: 1. Ignoring income taxes, prepare the 2024 journal entry to adjust the accounts to reflect the average cost method. 2. How much higher or lower would cost of goods sold be in the 2023 revised income statement? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Ignoring income taxes, prepare the 2024 journal entry to adjust the accounts to reflect the average cost method. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. View transaction list Average Cost $ 56,400 72,200 81,600arrow_forwardE7-15 Alternative Inventory Methods Habicht Company was formed in 2018 to produce a single product. The production and sales for the next 4 years were as follows: Production Sales Units Total Costs Units Sales Units in Ending Revenue Inventory 2018 100,000 $200,000 80,000 $400,000 20,000 2019 120,000 234,000 110,000 550,000 30,000 2020 130,000 247,000 150,000 750,000 10,000 2021 130,000 240,500 120,000 600,000 20,000 Required: 1. Determine the gross profit for each year under each of the following periodic inventory methods: a. FIFO b. LIFO c. Average cost (Round unit costs to 3 decimal places.) 2. Next Level Explain whether the company’s return on assets (net income divided by average…arrow_forwardChapter 8 Perform (ASAC LO 5 and BSAC LO 2) Kingbird Company began operations late in 2024 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2024 and no markdowns during 2024, the ending inventory for 2024 was $13,708 under both the conventional retail method and the LIFO retail method. At the end of 2025, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2025. The following data are available for computations. Cost Inventory, January 1, 2025 Sales revenue Net markups mu Net markdowns mo Purchases Freight-in Estimated theft (b) The LIFO retail method. Ending inventory at cost Ending inventory at retail Cost $ $13,708 $ 63,900 5,888 Retail Compute the cost of the 2025 ending inventory under both: (a) The conventional retail method. $20,200 77,000 mu 9,900 mD 1,800 ex Beg Ending inventory using the conventional retail method $ 87,500 2,200 27336 40800…arrow_forward
- Exercise 8-27 (Algo) Dollar-value LIFO [LO8-8) Mercury Company has only one inventory pool. On December 31, 2024, Mercury adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO method was $218,000 Inventory data are as follows: Year 2025 2026 2027 Ending Inventory at Year End Costs $ 268,000 341,100 364,000 Date Required: Compute the inventory at December 31, 2025, 2026, and 2027, using the dollar-value LIFO method. Note: Round "Year end cost index" to 2 decimal places. 12/31/2024 12/31/2025 $ 12/031/2026 Inveedory at Year End Cost Inventory Layers Converted to Base Year Cost Year Ending Inventory End Cost at flase Year Cost Index 1 GE $218.000 1.05. Base S 256.000 Base 2025 1.15 - $ 314,000 Base $218.000 O 268 800 Ending Inventory at Base Year Costs $ 256,000 114,000 304,000 $ 361,100 12/31/2027 $364.800 12 O- 3 304.000 Answer is not complete. Inventory Layers Converted to Cost Ending Inventory at flase Year Cost $218.000 O $218.000 s…arrow_forwardComputing and Analyzing a LIFO Liquidation Chide’s storage facility was shut down due to a strike in December 2020, resulting in a drastic reduction in inventory. The company had switched to LIFO effective January 1, 2020. The following data are available. Chide is on a calendar-year reporting basis. Units Unit Cost Beginning inventory (Base layer of LIFO—January 1) 32,000 $1.00 Inventory purchases during 2020 720,000 $1.25 Total available for sale 752,000 Sales (valued on a LIFO basis) from: Purchases 720,000 $1.25 Base inventory layer 16,000 $1.00 Total 736,000 Ending inventory (December 31, 2020) 16,000 What is the LIFO liquidation after-tax profit or loss assuming a 25% tax rate? Note: Indicate a loss with a negative sign. $Answerarrow_forwardExercise 8-14 (Algo) Inventory cost flow methods; perpetual system [LO8-1, 8-4] [The following information applies to the questions displayed below.] Altira Corporation provides the following information related to its inventory during the month of August 2024: August 1 Inventory on hand-2,900 units; cost $7.00 each. August 8 Purchased 14,500 units for $6.40 each. Sold 11,600 units for Purchased 8,700 units August 14 $12.90 each. August 18 for $6.00 each. August 25 Sold 10,600 units for $11.90 each. August 28 Purchased 4,900 units for $5.80 each. August 31 Inventory on hand-8,800 units. Exercise 8-14 (Algo) Part 1 Required: 1. Using calculations based on a perpetual inventory system, determine the inventory balance Altira would report in its August 31, 2024, balance sheet and the cost of goods sold it would report in its August 2024 income statement using the FIFO method. Perpetual FIFO: Beginning Inventory Purchases: August 8 August 18 August 28 Total Cost of Goods Available for Sale…arrow_forward
- Exercise 8-27 (Algo) Dollar-value LIFO [LO8-8) Mercury Company has only one inventory pool. On December 31, 2024, Mercury adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO method was $218,000 Inventory data are as follows: Year 2025 2026 2027 Ending Inventory at Year End Costs $ 268,000 341,100 364,000 Date Required: Compute the inventory at December 31, 2025, 2026, and 2027, using the dollar-value LIFO method. Note: Round "Year end cost index" to 2 decimal places. 12/31/2024 12/31/2025 $ 12/031/2026 Inventory at Year End Cost Inventory Layers Converted to Base Year Cost Year Ending Inventory End Cost at flase Year Cost Index 1 GE $218.000 1.05. Base S 256.000 Base 2025 1.15 - $ 314,000 Base $218.000 O 268 800 Ending Inventory at Base Year Costs $ 256,000 114,000 304,000 $ 361,100 12/31/2027 $364.800 12 O- 3 304.000 Answer is not complete. Inventory Layers Converted to Cost Ending Inventory at flase Year Cost $218.000 O $218.000 s…arrow_forwardCurrent Attempt in Progress Blossom Corporation began operations on December 1, 2024. The only inventory transaction in 2024 was the purchase of inventory on December 10, 2024, at a cost of $25 per unit. None of this inventory was sold in 2024. Relevant information is as follows. Ending inventory units December 31, 2024 December 31, 2025, by purchase date December 2, 2025 127 July 20, 2025 127 50 177 During the year, the following purchases and sales were made. Purchases Sales March 15 327 units at $30 April 10 227 July 20 327 units at 32 August 20 327 September 4 227 units at 36 November 18 177 December 2 127 units at 38 December 12 227 The company uses the periodic inventory method. (a1) Your answer is correct. Calculate the weighted-average cost per unit. (Round answer to 2 decimal places, e.g. 2.76.) Weighted-average cost $ (a2) eTextbook and Media Your answer is partially correct. 32.11 Attempts: 1 of 4 used Determine ending inventory under (1) specific identification, (2) FIFO,…arrow_forward7-52 Chapter 7 Inventories: Cost Measurement and Flow Assumptions P7-13 Dollar-Value LIFO Kwestel Company adopted the dollar-value LIFO method for inventory valuation at the be- ginning of 2015. The following information about the inventory at the end of cach year is available from Kwestel's records: LO 7.7 Year Current Cost Index $ 8,000 10,800 11,500 14,000 10,500 2014 100 120 2015 2016 130 145 2017 2018 125 Required: Calculate the dollar-value LIFO inventory at the end of each year. Round to the nearest dollar.arrow_forward
- ! Required information Problem 9-7 (Algo) Retail inventory method; conventional and LIFO [LO9-3, 9-4] [The following information applies to the questions displayed below.] Alquist Company uses the retail method to estimate its ending inventory. Selected information about its year 2021 operations is as follows: a. January 1, 2021, beginning inventory had a cost of $210,000 and a retail value of $260,000. b. Purchases during 2021 cost $1,467,000 with an original retail value of $2,330,000. c. Freight costs were $21,000 for incoming merchandise. d. Net additional markups were $240,000 and net markdowns were $170,000. e. Based on prior experience, shrinkage due to shoplifting was estimated to be $26,000 of retail value. f. Merchandise is sold to employees at a 20% of selling price discount. Employee sales are recorded in a separate account at the net selling price. The balance in this account at the end of 2021 is $360,000. g. Sales to customers totaled $1,860,000 for the year. Problem 9-7…arrow_forward13 Mactan Company’s statements for 2018 and 2019 included the following errors: 12/31/18 inventory understated P2,000,000 12/31/19 inventory overstated 1,000,000 Depreciation for 2018 understated 400,000 Depreciation for 2019 overstated 800,000 How much should retained earnings be retroactively adjusted on January 1, 2020? Group of answer choices 1,400,000 decrease 600,000 increase 600,000 decrease 1,400,000 increasearrow_forwardProblem 8.1A (Static) Four Methods of Inventory Valuation (LO8-1) On January 15, 2021, Sports World sold 1,000 Ace-5 fishing reels to Angler's Warehouse. Immediately prior to this sale,Sports World perpetual inventory records for Ace-5 reels included the following cost layers. Purchase Date Quantity Unit Cost Total Cost 29 Dec. 12, 2020 600 S Jan. 9, 2021 900 Total on hand 1,500 $ 17,400 32 28,800 $ 46,200 Required: a. Prepare a separate journal entry to record the cost of goods sold relating to the January 15 sale of 1,000 Ace-5 reels, assuming that Sports World uses: 1. Specific identification (500 of the units sold were purchased on December 12, and the remaining 500 were purchased on January 9). 2. Average cost. 3. FIFO. 4. LIFO. b. Complete a subsidiary ledger record for Ace-5 reels using each of the four inventory valuation methods listed above. Your inventory records should show both purchases of this product, the sale on January 15, and the balance on hand at December 12,…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337788281/9781337788281_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337690881/9781337690881_smallCoverImage.gif)