Question

Item 11

Item 11

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

Net sales		2,960
Cost of goods available for sale		2,360
Operating expenses		800
Effective tax rate		40	%
Ending inventories:
If LIFO is elected		960
If FIFO is elected		1,140

What is Nu's gross profit ratio if it elects LIFO?-----

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Item 12

Item 12

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2018, when it had an inventory of $710,000. Its inventory as of December 31, 2018, was $802,500 at year-end costs and the cost index was 1.07. What was DVL inventory on December 31, 2018?

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Bond Company adopted the dollar-value LIFO inventory method on January 1, 2018. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

	Ending Inventory
Year	At Current Cost				At Base Year Cost				Cost Index
1/1/2018	$	301,000			$	301,000				1.00
12/31/2018		353,100				330,000				1.07
12/31/2019		434,320				356,000				1.22

Under the dollar-value LIFO method, the inventory at December 31, 2019, should be

Answer 1

Answer to Item 11

Gross profit ratio of Nu company if it elects LIFO is   52.70 %

Gross profit ratio = (Gross profit ÷ Net sales) * 100

= 1,560/2,960 * 100 = 52.70 %

Working Notes :

1). Calculation of Gross profit -

Net Sales	$ 2,960
Less: Cost of Goods sold	$(1,400)
GROSS PROFIT	$ 1,560

2). Calculation of cost of goods sold -

Cost of Goods sold = Cost of Goods available for sale - Ending inventory (LIFO)

=2,360 - 960 = $ 1,400

Answer to Item 12

The Dollar Value LIFO (DVL) inventory of Udon Inc. at December 31,2018 is $ 752,800 .

Cost of Inventory (1/1 /2018)	Given	$ 710,000
Change in cost (12/31/2018)	W.N (2)	42,800
DVL inventory on 12/31/2018		$ 752,800

Working Notes :

1). Computation of change in cost of inventory

Date	Inventory at year end cost (I)	Cost Index (II)	Inventory at base year cost (I) ÷ (II)	Change in price
01/01/2018	$ 710,000	1	$ 710,000	0
12/31/2018	$ 802,500	1.07	$ 750,000	40,000

2). Change in inventory cost on 12/31/2018 =

=40,000 × 1.07 = $ 42,800

Answer to Part 3 (Bond Company)

Under the DVL method, the inventory of Bond Company at December 31, 2019 should be $ 363,750 .

Particulars (i)	Cost Index (ii)	Amount (i) * (ii)
Base year - Cost of inventory $ 301,000	$ 1	$ 301,000
Change in price in 2018 - $ 29,000	$ 1.07	$ 31,030
Change in price in 2019 - $ 26,000	$ 1.22	$ 31,720
Inventory Balance (12/31/2019)		$363,750

Working Notes :

1). Computation of change in prices

Date	Inventory at year end cost	Inventory at base year cost	Change in prices
1/1/18	$301,000	$301,000	$ 0
12/31/18	$353,100	$330,000	$29,000
12/31/19	$434,320	$356,000	$26,000