Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2013, fiscal year-end inventory of its main product, double-door stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition): The replacement cost of the refrigerators throughout 2014 was $900. Modern Day sold 5,000 of these refrigerators during 2014. The company's selling price throughout 2014 was $1,200.
Required:
1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2014 assuming that Modern Day purchased 5,200 units during the year.
2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.
3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2014 disclosure notes, if any, assuming any calculated amount is material?

Question

Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2013, fiscal year-end inventory of its main product, double-door stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition):  The replacement cost of the refrigerators throughout 2014 was $900. Modern Day sold 5,000 of these refrigerators during 2014. The company's selling price throughout 2014 was $1,200.
Required:
1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2014 assuming that Modern Day purchased 5,200 units during the year.
2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.
3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2014 disclosure notes, if any, assuming any calculated amount is material?

Quizplus · Accepted Answer

The Answer of Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2013, fiscal year-end inventory of its main product, double-door stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition):  The replacement cost of the refrigerators throughout 2014 was $900. Modern Day sold 5,000 of these refrigerators during 2014. The company's selling price throughout 2014 was $1,200.
Required:
1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2014 assuming that Modern Day purchased 5,200 units during the year.
2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.
3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2014 disclosure notes, if any, assuming any calculated amount is material?