Wakefield Company Uses a Perpetual Inventory System

question 27

Multiple Choice

Wakefield Company uses a perpetual inventory system.In August,it sold 2,000 units from its LIFO-base inventory,which had originally cost $35 per unit.The replacement cost is expected to be $45 per unit.The company is planning to reduce its inventory and expects to replace only 1,500 of these units by December 31,the end of its fiscal year.The company replaced 1,500 units in November at an actual cost of $50 per unit.
-Based on the preceding information,in the entry in August to record the sale of the 2,000 units:

• A)Cost of Goods Sold will be debited for $70,000.
• B)Inventory will be credited for $85,000.
• C)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $15,000.
• D)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $67,000.

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Definitions:

Income Tax Benefit

A reduction in income tax payments, which can result from deductions, exemptions, or credits, often recognizing benefits from losses or deductions from previous years.

Income Tax Expense

The amount of money a company or individual owes to the government based on earned income, reflecting the tax rate and taxable earnings for a fiscal period.

Income Tax Rate Change

A modification in the percentage that individuals or corporations are required to pay to the government from their income.

Future Liability

A financial obligation or debt that a company is required to pay at a future date.