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

In determining the inventory balance should Badger report in its 12/31/2019 balance sheet:

Multiple Choice

• An additional layer of $23,330 is added to the 1/1/2019 balance.

• An additional layer of $22,330 is added to the 1/1/2019 balance.

• An additional layer of $11,330 is added to the 1/1/2019 balance.

• None of these answer choices are correct.

2/ Northwest Fur Co. started 2018 with $104,000 of merchandise inventory on hand. During 2018, $590,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,900. Merchandise with an invoice amount of $3,300 was returned for credit. Cost of goods sold for the year was $372,000. Northwest uses a perpetual inventory system.

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

Multiple Choice

• $680,999.

• $680,900.

• $703,800.

• $698,600

3/ Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 42 units at $97
• 72 units at $76
• 171 units at $53

Sales for the year totaled 269 units, leaving 16 units on hand at the end of the year.

Ending inventory using the LIFO method is:

Multiple Choice

• $1,552.

• $898.

• $1,045.

• $848.

4/ Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2018, when it had an inventory of $862,000. Its inventory as of December 31, 2018, was $897,000 at year-end costs and the cost index was 1.15. What was DVL inventory on December 31, 2018?

Multiple Choice

• 780,000.

• 862,000.

• 897,000.

• 991,300.

Answer 1

Solution 1:

Computation of inventory at base year prices and change from prior year -Badger Inc.
Year	Inventory at end of year prices	Price index	Inventory at base year prices	Change from Prior Years
2017	$100,300.00	1.00	$100,300	$0
2018	$126,945.00	1.05	$120,900	$20,600
2019	$144,320.00	1.10	$131,200	$10,300
2020	$154,860.00	1.20	$129,050	-$2,150

In determining the inventory balance Badger report in its 12/31/2019 balance sheet = An additional layer of $11,330 ($10,300*1.10) is added to the 1/1/2019 balance.

Hence 3rd option is correct.

Solution 2:

Cost of goods available for sale = Beginning inventory + Cost of merchandise purchased - Purchase returns - Purchase discounts + Freight

= $104,000 + $590,000 - $3,300 - ($586,700*3%) + $7,900

= $680,999

Hence first option is correct.

Solution 3:

Ending inventory using LIFO method will consist inventory from first purchase, Therefore ending inventory = 16*$97 = $1,552

Hence first option is correct.

Solution 4:

Ending inventory at base year price = $897,000 / 1.15 = $780,000

Change from previous year = $780,000 - $862,000 = $82,000

Therefore DVL inventory on December 31, 2018 = $780,000*1 = $780,000

Hence first option is correct.