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Chapter 8: Q. 8-20E (page 429)

Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis鈥� records.

Price Ending Inventory Ending Inventory

Date Index at Base Prices at Dollar-Value LIFO

December 31, 2017 105 \(92,000 \)92,600

December 31, 2018 ? 97,000 98,350

Instructions

Calculate the index used for 2018 that yielded the above results.

Short Answer

Expert verified

The index value for 2018 comes out to be 115.

Step by step solution

01

Layer for 2018 at dollar value LIFO

The layer is the difference between the ending inventory at base year price and opening inventory at base year price.

Amountoflayeratdollar-value-LIFO=EndinginventoryatdollarvalueLIFO(2018)-EndinginventoryatdollarvalueLIFO(2017)=$98,350-$92,600=$5,750

02

Layer for 2018 at base year prices

Amountoflayeratbaseyearprices=Endinginventoryatbaseyearprices(2018)-Endinginventoryatbaseyearprices(2017)=$97,000-$92,000=$5,000

03

Index value for 2018

Index=LayeratdollarvalueLIFOLayeratbaseyearprices=$5,750$5,000=1.15or115%

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Most popular questions from this chapter

What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements?

John Adams Company鈥檚 record of transactions for the month of April was as follows.

Purchases Sales

April 1 (balance on hand) 600 @ \( 6.00 April 3 500 @ \)10.00

4 1,500 @ 6.08 9 1,400 @ 10.00

8 800 @ 6.40 11 600 @ 11.00

13 1,200 @ 6.50 23 1,200 @ 11.00

21 700 @ 6.60 27 900 @ 12.00

29 500 @ 6.79 4,600

5,300

Instructions

(a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and(2) average-cost.

(b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO.

(c) Compute the cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO.

(d) In an inflationary period, which inventory method鈥擣IFO, LIFO, average cost鈥攚ill show the highest net income?

Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of goods sold using the LIFO method.

Question:Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost \(34 each. During June, the company purchased 150 units at \)34 each, returned 6 units for credit, and sold 125 units at $50 each.

Journalize the June transactions.

Presented below is information related to Blowfish radios for the Hootie Company for the month of July.

Units Unit Total Units Selling Total

InCostSoldPrice

Date Transaction

July 1 Balance 100 \(4.10 \) 410

6 Purchase 800 4.20 3,360

7 Sale 300\(7.00 \) 2,100

10 Sale 300 7.30 2,190

12 Purchase 400 4.50 1,800

15 Sale 200 7.40 1,480

18 Purchase 300 4.60 1,380

22 Sale 400 7.40 2,960

25 Purchase 500 4.58 2,290

30 Sale 200 7.50 1,500

Totals 2,100\(9,240 1,400\)10,230

Instructions

(a) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions.

(1) FIFO.

(2) LIFO.

(3) Weighted-average.

(b) Answer the following questions.

(1) Which of the methods used above will yield the lowest figure for gross profit for the income statement? Explain why.

(2) Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? Explain why.
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