What is the accounting explanation for LIFO liquidation

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Question - Chide's storage facility was shut down due to a strike in December 2020, resulting in a drastic reduction in inventory. The company had switched to LIFO effective January 1, 2020. The company sold 460,000 units in 2020.

 

Units

Unit Cost

Beginning inventory (Base layer of LIFO - January 1)

20,000

$1.00

Inventory purchases during 2020

450,000

1.25

Total goods available for sale

470,000

 

Ending inventory (December 31, 2020)

10,000

 

Required -

a) What is the LIFO liquidation after-tax profit or loss assuming a 25 % tax rate?

b) What is the accounting explanation for LIFO liquidation?

Reference no: EM133168888

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