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Esquire Inc. uses the LIFO method to report its inventory. Inventory at January 1, 2021, was $420,000 (21,000 units at $20 each). During 2021, 82,000 units were purchased, all at the same price of $23 per unit. 86,000 units were sold during 2021. Assuming an income tax rate of 25%, what is LIFO liquidation profit or loss that the company would report in a disclosure note accompanying its financial statements

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Answer: Profit of $9,000

Explanation:

First find the Cost of goods sold assuming the LIFO was used. 82,000 of the most recent stock will be sold and 4,000 will be taken from the beginning stock to reach 86,000 units.

= (82,000 units * 23) + (4,000 * 20)

= $‭1,966,000‬

LIFO liquidation profit(loss):

= (Sales - Cost of Goods sold) * ( 1 - Tax)

Selling price is assumed to be $23 which is cost of recent inventory.

= [(86,000 * 23) - 1,966,000 ] * (1 - 25%)

= 12,000 * 0.75

= $9,000