Question

On January 1, 2018, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this...

On January 1, 2018, 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

2018

$

126,000

1.05

2019

130,000

1.10

2020

153,600

1.20

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

A) An additional layer of $23,000 is added to the 1/1/2019 balance.

B) An additional layer of $22,000 is added to the 1/1/2019 balance.

C) An additional layer of $11,000 is added to the 1/1/2019 balance.

D) None of these answer choices are correct.

Answer:  C

Explanation: $143,000 ÷ 1.10 = $130,000. This includes the previous two layers, the first at $100,000 and the second at $20,000, plus another at $10,000. The third is then brought forward to 12/31/2019 by $10,000 × 1.10 = $11,000.

Can someone please explain where 143,000 is coming from?

Please solve this with clear steps & explainations shown as the given explaination doesn't make sense to me. Why isn't 130,0000 being divided by 1.1??

Homework Answers

Answer #1

Solution:-

C) An additional layer of $11,000 is added to the 1/1/2019 balance.

Explanation:-

Please check value of 2019's Ending inventory at year-end costs it should be 143,000.

So 143,000 / 1.10 = 130,000.

Firse layer (January 1, 2018) inventory cost 100,000
Second layer (126,000 / 1.05) - 100,000 20,000
Third layer (for 2019) (143,000 / 1.10) - (126,000 / 1.05) 10,000
The third is then brought forward to 12/31/2019 by 10,000 * 1.10 $11,000

If you keep 130,000 as 2019 Ending inventory at year-end costs than answer would be

D) None of these answer choices are correct.

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