LIFO liquidation
Response to the following problem:
Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2016 with inventory of 4,500 units of its only product. The beginning inventory balance of $64,000 consisted of the following layers:
2,000 units at $12 per unit $24,000
2,500 units at $16 per unit 40,000
Beginning inventory $64,000
During the three years 2016-2018 the cost of inventory remained constant at $18 per unit. Unit purchases and sales during these years were as follows:
|
|
Purchases
|
Sales
|
|
2016
|
10,000
|
11,000
|
|
2017
|
13,000
|
14,500
|
|
2018
|
12,000
|
13,000
|
Required:
1. Calculate cost of goods sold for 2016, 2017, and 2018.
2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for each of the three years.
3. Prepare the company's LIFO liquidation disclosure note that would be included in the 2018 financial statements to report the effects of any liquidation on cost of goods sold and net income. Assume any liquidation effects are material and that Cansela's effective income tax rate is 40%. Cansela's 2018 financial statements include income statements for two prior years for comparative purposes.