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accounting

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a physical inventory on december 31 shows 2,000 units on hand. holliday sells the units for $12 each. the company has an effective tax rate of 20%. holliday uses the periodic inventory method. what is the difference in taxes if LIFO rather than fifo is used?

  • accounting -

    Example

    Inventory Jan 1 5000 @ $9= 45000
    Purchase June 18 4500@$8 = 36000
    Nov 8 3000 @ $7 = 21000

    $102000
    Total sold 12500
    Under FIFO
    2000 units last each cost 7 = $14000
    COGS = $102000-$14000 = $88000



    Weight-average cost unit
    102000/12500 = $8.16


    Sales Ending 2000 * 9 = $18000
    COGS = $102000- 180000
    = $84000



    Sale = 10500 *12 = $126000
    Less COGS $88000
    Gross profit = $38000
    Tax at 20% = $7600
    Sale = 126000
    Less COGS = 84000
    Gross profit = $42000
    Tax at 20% = $8400
    $8400-$7600 = $ 800
    So tax is 800 higher than if FIFO is used.

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