Question

The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 22,000 units consisted of the following, listed in chronological order of acquisition: 13,000 units at a cost of $8.00 per unit = $104,000 9,000 units at a cost of $9.00 per unit = 81,000 During 2021, inventory quantity declined by 12,000 units. All units purchased during 2021 cost $12.00 per unit. Required: Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note, assuming the amount determined is material.

Answer 1

Answer:

$61,000

Explanation:

Given:

Beginning inventory = 22,000

13,000 units at a cost of $8.00 per unit = $104,000

9,000 units at a cost of $9.00 per unit = 81,000

inventory quantity declined by 12,000 units

All units purchased during 2021 cost = $12.00 per unit

Now,

Liquidation quantity = Beginning inventory - acquisition

thus,

20000 - 13000 = 7000  units at a cost of $8.00 per unit

20000 - 9000 = 11,000 units at a cost of $9.00 per unit

Total liquidation quantity = 7,000 + 11,000 = 18,000 units

LIFO profit for units at a cost  $8.00 per unit = Purchasing cost - unit cost

= $12 - $8 = $4

LIFO profit for units at a cost  $9.00 per unit = Purchasing cost - unit cost

= $12 - $9 = $3

Now,

The LIFO profit = 7,000 × $4 + 11,000 × $3

or

The LIFO profit = 28,000 + 33,000 = $61,000

Hence,

The before tax LIFO profit is $61,000