Problem - UFO liquidation
Taylor Corporation has used a periodic inventory system and the LIFO cost method since its inception in 2009. The company began 2016 with the following inventory layers (listed in chronological order of acquisition):
12,500 units @ $20 - $250,000
17,500 units @ $25 - 437,500
Beginning inventory - $687,500
During 2016, 35,000 units were purchased for $30 per unit. Due to unexpected demand for the company's product, 2016 sales totaled 43,000 units at various prices, leaving 22,000 units in ending inventory.
Required:
1. Calculate cost ol goods sold for 2016.
2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2016 financial statements. Assume an income tax rate of 35%.
3. If the company decided to purchase an additional 8,000 units at can per unit at the end of the year, how much income tax currently payable would be saved?