Esquire Inc. uses the LIFO method to report its inventory. Inventory at January 1, 2021, was $950,000 (38,000 units at $25 each). During 2021, 116,000 units were purchased, all at the same price of $30 per unit. 120,000 units were sold during 2021. Assuming an income tax rate of 25%, what is LIFO liquidation profit or loss that the company would report in a disclosure note accompanying its financial statements?

The company would report in a disclosure note accompanying its financial statements:

Lifo assigns an amount to cost of goods sold on the income statement that approximates its current cost; it also better matches current costs with revenues in computing gross profit.

Explanation:

Lifo assigns the highest amount to cost of goods sold - yielding the lowest gross profit and net income which also yields a temporary tax advantage by postponing payment of some income tax.

The tax of LIFO method would be $ 42,500 than the tax of FIFO method.

January 1, 2021  Inventory  ,  $950,000 (38,000 units at $25 each)

Purchases 116,000 units   $30 per unit = $ 3480,000

Sales  120,000

LIFO Ending Inventory 34,000 units at $ 25 = $ 850,000

LIFO Cost of Goods Sold = $ 3480,000+ $950,000-$ 850,000= $ 3580,000

If FIFO was used the ending Inventory would be  34,000 units at $ 30

= $ 1020,000

And FIFO Cost of Goods Sold =  $ 3480,000+ $950,000-$ 1020,000=

$ 3410,000.

There would be difference of $ 170,000 in the LIFO and FIFO Cost of goods sold. The LIFO COGS is $ 170,000 more than FIFO COGS .

That difference would also be in the income LIFO method. The income of LIFO would be $ 170,000 less therefore having ($ 170,000* 25%)  $ 42,500 less income tax.

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough