LIFO liquidation

Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2011 with inventory of 4,500 units of its only product. The beginning inventory balance of $64,000 consisted of the following layers:

2,000 units at $12 per unit	. $24,000
2,500 units at $16 per unit	40,000
	$64,000

During the three years 20112013 the cost of inventory remained constant at $18 per unit. Unit purchases and sales during these years were as follows:

	Purchases	Sales
2011	10,000	11,000
2012	13,000	14,500
2013	12,000	13,000

Required:

1. Calculate cost of goods sold for 2011, 2012, and 2013.

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2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for each of the three years.

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3. Prepare the companys LIFO liquidation disclosure note that would be included in the 2013 financial statements to report the effects of any liquidation on cost of goods sold and net income. Assume any liquidation effects are material and that Canselas effective income tax rate is 40%. Canselas 2013 financial statements include income statements for two prior years for comparative purposes.

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