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Calculate cost of goods sold for 2011, 2012, and 2013. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for each of the three years.

05 / 03 / 2018 Assignment

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LIFO liquidation

Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2011 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


$64,000

During the three years 2011’2013 the cost of inventory remained constant at $18 per unit. Unit purchases and sales during these years were as follows:


Purchases

Sales

2011

10,000

11,000

2012

13,000

14,500

2013

12,000

13,000

Required:

1. Calculate cost of goods sold for 2011, 2012, and 2013.


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 2013 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 2013 financial statements include income statements for two prior years for comparative purposes.


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