6. Computing and Disclosing a LIFO Liquidation

Southeast Inc. has maintained a periodic inventory system and the LIFO inventory method for over 20 years. The earliest layers of LIFO inventory of 72,000 units date back 15 years. The company had beginning inventory (January 1) made up of the following three layers.

Units	Unit Cost	Total Cost
72,000	$20.00	$1,440,000
60,000	25.00	1,500,000
12,000	50.00	600,000
		$3,540,000

At its December 31 year-end, an involuntary liquidation of beginning inventory occurred. Beginning inventory dropped to 96,000 units. The current replacement value of inventory is $50.

a. What is the effect of the LIFO liquidation on after-tax profit or loss assuming a 25% tax rate? $Answer

b. What disclosure is required based on the answer to part a? The LIFO liquidation Answerprofitloss

of $Answer

must be disclosed in the notes to the financial statements. The effect of the LIFO liquidation is to Answerincreasedecrease

Answersales revenuecost of goods soldother expenses

by $Answer

, which in turn, causes taxes to Answerincreasedecrease

.