LIFO liquidation
Response to the following problem:
The Reuschel Company began 2016 with inventory of 10,000 units at a cost of $7 per unit. During 2016, 50,000 units were purchased for $8.50 each. Sales for the year totaled 54,000 units leaving 6,000 units on hand at the end of 2016. Reuschel uses a periodic inventory system and the LIFO inventory cost method.
Required:
1. Calculate cost of goods sold for 2016.
2. From a financial reporting perspective, what problem is created by the use of LIFO in this situation? Describe the disclosure required to report the effects of this problem.