The Hammond Company adopted LIFO when it was formed on January 1, 2005. Since then, the company
Question:
In December 2008, the controller realized that because of an unexpected increase in demand, the company had sold 22,000 units but had purchased only 19,000 units during the year. In 2008, each unit had been sold for $19, and each unit purchased had cost $10. The income tax rate is 30%.
Required
1. If the company makes no additional purchases in 2008, how much LIFO liquidation profit will it report?
2. Prepare the appropriate annual report disclosures for 2008.
3. If the company purchases an additional 7,000 units in December 2008, how much income tax will the company save?
4. If the company purchases the additional 7,000 units, how much income tax has the company saved over the four-year period by using LIFO instead of the FIFO cost flowassumption?
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones