Effect of the year-end purchase on income tax
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A manufacturing company maintains an inventory of steel for use in its business. The company uses LIFO periodic for its inventory of steel.
Beginning inventory for the current period was as follows:
6,000 tons @ $400 per ton
15,000 tons @ $450 per ton
Only one purchase of steel was made during the year: 25,000 tons @ $600 per ton.
The company used 41,000 tons during the year in manufacturing. All goods manufactured were sold.
On the last day of the current year, the company decided to purchase 16,000 tons @ $600 per ton.
Compute the effect of the year-end purchase on income tax for the fiscal year. Assume a tax rate of 30%.
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Solution Summary
The solution explains how to determine the effect of the year-end purchase on income tax.
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In the LIFO method, the latest purchases are assumed to be sold first.
Without the year end purchase, the 41,000 tons sold would be 25,000 @ 600 (the latest ...
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