Caldwell Corporation operates an ice cream processing plant and uses the FIFO inventory cost flow assumption. A partial income statement for the year ended December 31, 2014, follows:

Caldwell’s physical inventory levels were virtually constant throughout 2014. The FIFO dollar amount of inventory at January 1, 2014, was $60,000,000. During 2014, the Consumer Price Index (an index of overall average purchasing power for typical urban-dwelling consumers) increased by 4%.
Caldwell Corporation’s largest competitor, Cohen Confections, uses LIFO for inventory accounting. Excerpts from its December 31, 2014, inventory note were:

The difference between the LIFO inventory amounts and the replacement cost of the inventory at
December 31, 2014 and 2013, respectively, was $18,000,000 and $12,000,000. A LIFO liquidation occurred in 2014, which increased the reported gross margin by $1,000,000.

Using the preceding information, what is the best estimate of the amount of realized holding gains (or inventory profits) included in Caldwell Corporation’s income beforetaxes?

  • CreatedSeptember 10, 2014
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