Computing and Analyzing a LIFO LiquidationChide Inc. changed its inventory method to LIFO effective January 1. During December, Chide's storage facility was shut down due to a strikeresulting in a drastic reduction in inventory. The following data are available.UnitUnits CostBeginning inventory (Base layer of LIFO-January 1) 20,000 $1.00Inventory purchases during the yearTotal cost of goods sold available for saleGoods sold (valued on a LIFO basis) from:450,000 1.25470,000Purchases layerBase inventory layerTotal cost of goods sold450,000 1.2510,000 1.00Ending inventory (December 31)460,00010,000a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate?$ 10,000Increase to after tax profit ✰b. What is the accounting explanation for LIFO liquidation?Due to lower cost inventory matched to current selling price which has increased over time. ÷

LIFO (Last-In, First-Out) liquidation refers to the process of selling or consuming inventory items…

Computing and Analyzing a LIFO Liquidation Chide Inc. changed its inventory method to LIFO effective January 1. During December, Chide's storage facility was shut down due to a strike resulting in a drastic reduction in inventory. The following data are available. Unit Units Cost Beginning inventory (Base layer of LIFO-January 1) 20,000 $1.00 Inventory purchases during the year 450,000 1.25 Total cost of goods sold available for sale 470,000 Goods sold (valued on a LIFO basis) from: Purchases layer 450,000 1.25 10,000 1.00 Base inventory layer Total cost of goods sold Ending inventory (December 31) 460,000 10,000 a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate? $ 10,000 × Increase to after tax profit b. What is the accounting explanation for LIFO liquidation? Due to lower cost inventory matched to current selling price which has increased over time.

Computing and Analyzing a LIFO Liquidation Chide Inc. changed its inventory method to LIFO effective January 1. During December, Chide's storage facility was shut down due to a strike resulting in a drastic reduction in inventory. The following data are available. Unit Units Cost Beginning inventory (Base layer of LIFO-January 1) 20,000 $1.00 Inventory purchases during the year 450,000 1.25 Total cost of goods sold available for sale 470,000 Goods sold (valued on a LIFO basis) from: Purchases layer 450,000 1.25 10,000 1.00 Base inventory layer Total cost of goods sold Ending inventory (December 31) 460,000 10,000 a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate? $ 10,000 × Increase to after tax profit b. What is the accounting explanation for LIFO liquidation? Due to lower cost inventory matched to current selling price which has increased over time.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter5: Inventories And Cost Of Goods Sold

Section: Chapter Questions

Problem 5.12AMCP

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Reid Company uses the periodic inventory system. On January 1, it had an inventory balance of 250,000. During the year, it made 613,000 of net purchases. At the end of the year, a physical inventory showed it had ending inventory of 140,000. Calculate Reid Companys cost of goods sold for the year.
Inventory by three cost flow methods Details regarding the inventory of appliances on January 1, 20Y7, purchases invoices during the year, and the inventory count on December 31. 2O’7. of Amsterdam Appliances are summarized as follows: Instructions Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
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Effects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in 2019 appear below. During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly. a. A purchase return of inventory costing $42,000 was recorded twice. b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017. Required: 1. Was ending inventory for 2017 overstated or understated? By how much? 2. Prepare correct income statements for all 3 years. 3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response. 4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?
Lower-of-cost-or market inventory Data on the physical inventory of Moyer Company as of December 31, 20Y9, are presented below. Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Instructions Determine the inventory at cost and at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on an inventory sheet and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed below as an example.
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Refer to the information in E22-13. Required: Prepare the correcting journal entries if the company discovers each error 2 years after it is made and it has closed the books for the second year. Ignore income taxes. E22-13: The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-vear life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.
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