Nicholas Industries had the following inventory transactions occur during 2014: $$\begin{array} { l l c c }
&& \text { Units } & \text { Cost/unit } \
2 / 1 / 16 & \text { Purchase } & 54 & \$ 45 \
3 / 14 / 16 & \text { Purchase } & 93 & \$ 47 \
5 / 1 / 16 & \text { Purchase } & 66 & \$ 49
\end{array}$$ The company sold 140 units at $65 each and has a tax rate of 30%. Assuming that a periodic inventory system is used what is the company's after-tax income using LIFO? (rounded to whole dollars)
A) $1672
B) $1840
C) $2388
D) $2628

Question

Nicholas Industries had the following inventory transactions occur during 2014: $$\begin{array} { l l c c } 
&& \text { Units } & \text { Cost/unit } \
2 / 1 / 16 & \text { Purchase } & 54 & \$ 45 \
3 / 14 / 16 & \text { Purchase } & 93 & \$ 47 \
5 / 1 / 16 & \text { Purchase } & 66 & \$ 49
\end{array}$$ The company sold 140 units at $65 each and has a tax rate of 30%. Assuming that a periodic inventory system is used what is the company's after-tax income using LIFO? (rounded to whole dollars)
A) $1672
B) $1840
C) $2388
D) $2628

Quizplus · Accepted Answer

To calculate the company's after-tax income using LIFO (Last In, First Out), we first determine the cost of goods sold (COGS) and then the gross profit, from which we can calculate the after-tax income.1. Calculate COGS under LIFO:- The last purchases are sold first. So, the COGS will include all 66 units at $49, 93 units at $47, and 140 - 66 - 93 = -19 (this is not possible, so we only use 66 and 93 units for COGS calculation).- COGS = (66 units * $49) + (93 units * $47) = $3222 + $4371 = $75932. Calculate sales revenue:- Sales revenue = 140 units * $65 = $91003. Calculate gross profit:- Gross profit = Sales revenue - COGS = $9100 - $7593 = $15074. Calculate after-tax income:- After-tax income = Gross profit * (1 - tax rate) = $1507 * (1 - 0.30) = $1507 * 0.70 = $1054.9Rounding to whole dollars, the after-tax income is approximately $1055, which is not an option provided. It seems there was a mistake in the calculation. Let's correct the calculation:Correct COGS calculation:- For 140 units sold, using LIFO, we start with the last purchase:  - 66 units at $49 = $3234  - 74 units from the next batch (93 units at $47) = $3478 (since 140 - 66 = 74, and we have enough in the 93 units batch)- COGS = $3234 (from the 66 units) + $3478 (from the 74 units) = $6712Correct gross profit calculation:- Gross profit = Sales revenue - COGS = $9100 - $6712 = $2388Correct after-tax income calculation:- After-tax income = Gross profit * (1 - tax rate) = $2388 * (1 - 0.30) = $2388 * 0.70 = $1671.6Rounding to whole dollars, the after-tax income is approximately $1672, which matches option A. The initial explanation contained a calculation error, and the correct answer is based on recalculating COGS, gross profit, and after-tax income accurately.

Nicholas Industries Had the Following Inventory Transactions Occur During 2014