Question

1/ On January 1, 2018, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,300. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

Year-end	Ending inventory at year-end costs				Cost Index
2018	$	126,945				1.05
2019		144,320				1.10
2020		154,860				1.20

What inventory balance would Badger report on its 12/31/2020 balance sheet?

Multiple Choice

• $129,050.

• $130,895.

• $154,860.

• None of these answer choices are correct.

2/ Nu Company reported the following pretax data for its first year of operations.

Net sales		2,960
Cost of goods available for sale		2,450
Operating expenses		820
Effective tax rate		40	%
Ending inventories:
If LIFO is elected		830
If FIFO is elected		1,220

What is Nu's net income if it elects LIFO?

Multiple Choice

• $546.

• $910.

• $520.

• $312.

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Answer 1

1.

	A	X	A/X
Year	Ending inevntory	Price Index	Ending inventory @base year$	Layer change @ base year $			Layer change @ current year $	Ending inventory @$ value LIFO
2017	100,300	1.00	100300	100300	(base)	100,300 x 1	100300	100300
2018	126,945	1.05	120900	20600		20,600 x 1.05	21630	121930
2019	144,320	1.10	131200	10300		10,300 x 1.1	11330	133260
2020	154,860	1.20	129050	-2150		20,600 '+10,300 '-2150	30595	130895
						is 28750
	Of the 28,750, the latest layer is liquidated first and we have earlier layers in the inventory, so:
	28750	20600	1.05	21630
		8150	1.1	8965
				30595

The inventory balance that Badger would report would be $130,895 on the 12/31/2020 balance sheet.

2.If Nu company elects LIFO valuation of inventory method, the calculations shall be as follows:

Cost of goods available for sale	2,450
Less Ending inventory	830
Cost of goods sold	1,620
Sales	2,960
Less cost of goods sold	1,620
Less operating expenses	820
	520
Less tax @40%	208
Net income	312

Thus, the net income shall be $312 for its first year of operations.