# 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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