Question

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

Net sales		2,880
Cost of goods available for sale		2,320
Operating expenses		710
Effective tax rate		25	%
Ending inventories:
If LIFO is elected		910
If FIFO is elected		1,250

What is Nu's gross profit ratio if it elects LIFO? (Round your answer to the nearest whole percentage.)

• 63%.

• 51%.

• 68%.

• 29%.

On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. 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
2021	$	126,000				1.05
2022		143,000				1.10
2023		153,600				1.20

What inventory balance should Badger report on its 12/31/2021 balance sheet?

• $126,000

• $121,000

• $120,000

• $100,000

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2021. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2021, $450,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,180,000 and $945,000, respectively. California consistently reports a 30% gross profit. The estimated inventory on May 1, 2021, is:

• $534,000.

• $629,000.

• $570,600.

• $569,000.

Answer 1

Answer:
Particulars	Amount (in $)
Net sales	$ 2,880
Less: Cost of goods sold            ( $ 2,320 (-) $ 910)	($ 1,410)
Gross profit	$ 1,470
Gross profit ratio ($ 1,470 / $ 2,880 )	51%
Option (b) is Correct
2)
Cost of Beginning Inventory   = $ 100,000
Base year cost 2021            = Year end Costs / Cost Index         = $ 126,000 / 1.05         = $ 120,000
Cost of Ending Inventory       =   (Base year cost (-)Cost of Beginning Inventory ) x Cost Index for 2021       = ( $ 120,000 (-) $ 100,000 ) x 1.05       =    $ 21,000
Inventory balance that should be reported on 12/31/2021 balance Sheet        = $ 100,000 + $ 21,000        =   $ 121,000
Option(B) is Correct - $ 121,000
3)
Particulars	Amount (in $)
Beginning Inventory - January 1, 2021	$ 450,000
Add: Purchases	$ 945,000
Less: Cost of Goods Sold               ( $ 1,180,000 x ( 1- 30% )	($ 826,000)
Estimated inventory on May 1, 2021	$ 569,000
Option (d) is Correct