Question

Sunland Company had January 1 inventory of $299000 when it adopted dollar-value LIFO. During the year, purchases were $1750000 and sales were $3090000. December 31 inventory at year-end prices was $421800, and the price index was 111. What is Sunland Company’s gross profit?

A) 1462800

B) 2701090

C) 1198000

D) 1429910

Answer 1

Sunland Company’s gross profit is calculated as follows:

a)The base ending inventory is calculated at base value is as follows:

The base ending inventory = $421800 * 100 / 111

                                      = $380,000

b) The additional inventory is calculated as follows:

The additional inventory = Ending inventory - Begining inventory

                                   = $380,000 - $299,000

                                   = $81,000

c) The additional inventory at current prices is calculated as follows:

The additional inventory at current prices = $81,000 * 111/100

                                                             = $89,910

So value of ending inventory = $299,000 + $89,910

                                         = $388,910

d) Cost of goods sold = Begining Inventory + Purchases - Ending Inventory

                               = $299,000 + $1,750,000 - $388,910

                               = $1,660,090

e) Gross Profit = Sales - Cost of goods sold

                      = $3,090,000 - $1,660,090

                      = $1,429,910

Sunland Company’s gross profit is $1,429,910

So correct answer is an option (D) or $1,429,910