Question

1. The Datema Corporation began 2018 with a balance of $280,000 in its LIFO reserve account. This balance means that at the beginning of the year, inventory balance under LIFO is $280,000 lower than it would be under FIFO. By the end of 2018, the difference between LIFO and FIFO inventory balances is then $355,000. The LIFO reserve is adjusted to reflect the increase in the reserve. If the LIFO reserve has a normal credit balance, the entry to increase its balance would be:
2. 1. Debit Cost of Goods Sold $75,000; credit LIFO Reserve for $75,000
   2. Debit LIFO Reserve $75,000; credit Cost of Goods Sold for $75,000
   3. Debit LIFO Reserve $280,000; Debit Inventory for $75,000; Credit Cost of Goods Sold for $355,000
   4. Debit LIFO Reserve $75,000; debit Inventory for $280,000; Credit Cost of Goods Sold for $355,000
3. The following information pertains to one item of inventory of the Forge Company:

	Boots
Sales Price	$150,000
Cost	133,000
Replacement Cost	130,000
Sales Commission	10% of sales price
Normal profit margin	20%

Applying the lower of cost or net realizable value rule, this item should be valued at:        

1. $135,000
2. $133,000
3. $130,000
4. $105,000

3. Company uses the retail inventory method. The following information is available for the year:

	Cost	Retail
Beginning Inventory	780,000	1,300,000
Net Purchases	2,804,000	3,670,000
Net Markups		150,000
Net Markdowns		(90,000)
Net Sales		3,690,000

Applying the conventional cost retail inventory method, Bowden’s inventory at the end of the year is estimated at:

1. $954,784
2. $938,000
3. $810,700
4. $790,318

4. Tidal Company reported inventory in the 2020 year-end balance sheet, using the FIFO method, as $185,000. In 2021, the company decided to change its inventory method to average cost. If the company had used the average cost method in 2020, ending inventory would have been $171,000. What adjustment would Tidal make for this change in inventory method?
   1. Debit Inventory for $14,000; Credit Cost of goods sold for $14,000.
   2. Debit Retained earnings for $14,000; Credit Cost of goods sold for $14,000.
   3. Debit Inventory for $14,000; Credit Cost of goods sold for $14,000.
   4. No adjustment is necessary

Answer 1

1. Option a, Debit Cost of Goods Sold $75,000; credit LIFO Reserve for $75,000 [ 355,000- 280,000 = 75,000]

2. Option d, 105,000

NRV = 150000-30000-15000 = 105,000

Cost = 133,000

3 . Option B. 938,000

	Cost	Retail
Beginning Inventory	780,000	1,300,000
Plus: Purchases	2,804,000	3,670,000
Plus: Net markups		150,000
Cost of goods available for sale before markdown		5,120,000
Less: Net Markdown		90,000
Goods available for sale	3,584,000	5,030,000
Less : Sales		3,690,000
Ending inventory		1,340,000
Cost [ 1340000*70%]		938,000

Cost to retail percentage = Cost /Goods available for sale before markdown= 3584000/5120000 = 70%

4. Option, Debit Retained earnings for $14,000; Credit Cost of goods sold for $14,000.