Heinrich Company, which uses a periodic inventory system, imports and sells a product produced in Germany. In the summer of 2018, a natural disaster disrupted production, affecting its supply of product. Heinrich uses the LIFO inventory method. On January 1, 2019, Heinrich's inventory records were as follows:
Through mid-December of 2019, purchases were limited to 50,000 units, because the cost had increased to $50 per unit. Heinrich sold 55,000 units during 2019 at a selling price of $100 per unit, which significantly depleted its inventory. The cost was expected to drop to $42 per unit by early January 2020.
a. Assume that Heinrich makes no further purchases during 2019. Compute the gross profit for 2019.
b. Assume that Heinrich purchases 8,800 units before the end of December 2019 at $50 each. Compute its gross profit for 2019.
c. If Heinrich's corporate tax rate is 30%, how much tax savings will result from the purchase of inventory before year end?

Question

Heinrich Company, which uses a periodic inventory system, imports and sells a product produced in Germany. In the summer of 2018, a natural disaster disrupted production, affecting its supply of product. Heinrich uses the LIFO inventory method. On January 1, 2019, Heinrich's inventory records were as follows:
  Through mid-December of 2019, purchases were limited to 50,000 units, because the cost had increased to $50 per unit. Heinrich sold 55,000 units during 2019 at a selling price of $100 per unit, which significantly depleted its inventory. The cost was expected to drop to $42 per unit by early January 2020.
a. Assume that Heinrich makes no further purchases during 2019. Compute the gross profit for 2019.
b. Assume that Heinrich purchases 8,800 units before the end of December 2019 at $50 each. Compute its gross profit for 2019.
c. If Heinrich's corporate tax rate is 30%, how much tax savings will result from the purchase of inventory before year end?

Quizplus · Accepted Answer

The Answer of Heinrich Company, which uses a periodic inventory system, imports and sells a product produced in Germany. In the summer of 2018, a natural disaster disrupted production, affecting its supply of product. Heinrich uses the LIFO inventory method. On January 1, 2019, Heinrich's inventory records were as follows:
  Through mid-December of 2019, purchases were limited to 50,000 units, because the cost had increased to $50 per unit. Heinrich sold 55,000 units during 2019 at a selling price of $100 per unit, which significantly depleted its inventory. The cost was expected to drop to $42 per unit by early January 2020.
a. Assume that Heinrich makes no further purchases during 2019. Compute the gross profit for 2019.
b. Assume that Heinrich purchases 8,800 units before the end of December 2019 at $50 each. Compute its gross profit for 2019.
c. If Heinrich's corporate tax rate is 30%, how much tax savings will result from the purchase of inventory before year end?

Heinrich Company, Which Uses a Periodic Inventory System, Imports and Sells