SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 8-1

RIVERA COMPANY
Balance Sheet (Partial)
December 31
Current assets
Cash .................................................................... $ 190,000
Receivables (net) ............................................... 400,000
Inventories
Finished goods .......................................... $170,000
Work in process ......................................... 200,000
Raw materials............................................. 335,000 705,000
Prepaid insurance .............................................. 41,000
Total current assets ................................... $1,336,000

BRIEF EXERCISE 8-2

Inventory (150 X $34) ....................................................... 5,100

Accounts Payable ................................................... 5,100

Accounts Payable (6 X $34) ............................................ 204

Inventory ................................................................. 204

Accounts Receivable (125 X $50) ................................... 6,250

Sales ........................................................................ 6,250

Cost of Goods Sold (125 X $34) ...................................... 4,250

Inventory ................................................................. 4,250

BRIEF EXERCISE 8-3

December 31 inventory per physical count .......................... $ 200,000

Goods-in-transit purchased FOB shipping point ................. 25,000
Goods-in-transit sold FOB destination ................................. 22,000
December 31 inventory ................................................. $ 247,000

BRIEF EXERCISE 8-4

Cost of goods sold as reported ............................................. $1,400,000
Overstatement of 12/31/13 inventory ..................................... (110,000)
Overstatement of 12/31/14 inventory ..................................... 35,000
Corrected cost of goods sold ....................................... $1,325,000

12/31/14 retained earnings as reported ................................. $5,200,000

Overstatement of 12/31/14 inventory ..................................... (35,000)
Corrected 12/31/14 retained earnings .......................... $5,165,000

BRIEF EXERCISE 8-5

Weighted average cost per unit $11,850 = $ 11.85

1,000
Ending inventory 400 X $11.85 = $ 4,740

Cost of goods available for sale $11,850

Deduct ending inventory 4,740
Cost of goods sold (600 X $11.85) $ 7,110

BRIEF EXERCISE 8-6

April 23 350 X $13 = $ 4,550

April 15 50 X $12 = 600
Ending inventory $ 5,150

Cost of goods available for sale $11,850

Deduct ending inventory 5,150
Cost of goods sold $ 6,700

BRIEF EXERCISE 8-7

April 1 250 X $10 = $ 2,500

April 15 150 X $12 = 1,800
Ending inventory $ 4,300

Cost of goods available for sale $11,850

Deduct ending inventory 4,300
Cost of goods sold $ 7,550
BRIEF EXERCISE 8-8

2013 $100,000

2014 $119,900 ÷ 1.10 = $109,000

$100,000 X 1.00 ............................................................ $100,000
$9,000* X 1.10 .............................................................. 9,900
$109,900
*$109,000 – $100,000
2015 $134,560 ÷ 1.16 = $116,000
$100,000 X 1.00 ............................................................ $100,000
$9,000 X 1.10 ................................................................ 9,900
$7,000** X 1.16 ............................................................. 8,120
$118,020
**$116,000 – $109,000

BRIEF EXERCISE 8-9

2014 inventory at base amount ($22,140 ÷ 1.08) $ 20,500

2013 inventory at base amount (19,750)
Increase in base inventory $ 750
2014 inventory under LIFO
Layer one $19,750 X 1.00 $ 19,750
Layer two $ 750 X 1.08 810
$ 20,560

2015 inventory at base amount ($25,935 ÷ 1.14) $ 22,750

2014 inventory at base amount 20,500
Increase in base inventory $ 2,250
2015 inventory under LIFO
Layer one $19,750 X 1.00 $ 19,750
Layer two $ 750 X 1.08 810
Layer three $ 2,250 X 1.14 2,565
$ 23,125
 SOLUTIONS TO EXERCISES

EXERCISE 8-1 (15–20 minutes)

Items 1, 3, 5, 8, 11, 13, 14, 16, and 17 would be reported as inventory in the
financial statements.

The following items would not be reported as inventory:

2. Cost of goods sold in the income statement.
4. Not reported in the financial statements.
6. Cost of goods sold in the income statement.
7. Cost of goods sold in the income statement.
9. Interest expense in the income statement.
10. Advertising expense in the income statement.
12. Office supplies in the current assets section of the balance sheet.
15. Not reported in the financial statements.
18. Short-term investments in the current asset section of the balance sheet.

EXERCISE 8-2 (10–15 minutes)

Inventory per physical count $441,000

Goods in transit to customer, f.o.b. destination + 38,000
Goods in transit from vendor, f.o.b. seller + 51,000
Inventory to be reported on balance sheet $530,000

The consigned goods of $61,000 are not owned by Jose Oliva and were properly
excluded.

The goods in transit to a customer of $46,000, shipped f.o.b. shipping point, are
properly excluded from the inventory because the title to the goods passed
when they left the seller (Oliva) and therefore a sale and related cost of goods
sold should be recorded in 2014.

The goods in transit from a vendor of $83,000, shipped f.o.b. destination, are
properly excluded from the inventory because the title to the goods does not
pass to Oliva until the buyer (Oliva) receives them.
EXERCISE 8-3 (10–15 minutes)

1. Include. Ownership of the merchandise passes to customer only when it is

shipped.

2. Do not include. Title did not pass until January 3.

3. Include in inventory. Product belonged to Harlowe Inc. at December 31,

2014.

4. Include in inventory. Under invoice terms, title passed when goods were
shipped.

5. Do not include. Goods received on consignment remain the property of the

consignor.

EXERCISE 8-4 (10–15 minutes)

1. Raw Materials Inventory ..................................................

8,100
Accounts Payable ................................................... 8,100

2. Raw Materials Inventory ..................................................

28,000
Accounts Payable ................................................... 28,000

3. No adjustment necessary.

4. Accounts Payable ............................................................

7,500
Raw Materials Inventory ......................................... 7,500

5. Raw Materials Inventory ..................................................

19,800
Accounts Payable ................................................... 19,800
EXERCISE 8-5 (15–20 minutes)

(a) Inventory December 31, 2014 (unadjusted) $234,890

Transaction 2 13,420
Transaction 3 -0-
Transaction 4 -0-
Transaction 5 8,540
Transaction 6 (10,438)
Transaction 7 (10,520)
Transaction 8 1,500
Inventory December 31, 2014 (adjusted) $237,392

(b) Transaction 3
Sales Revenue ............................................... 12,800
Accounts Receivable................................................ 12,800
(To reverse sale entry in 2014)

Transaction 4
Purchases (Inventory) ................................... 15,630
Accounts Payable ..................................................... 15,630
(To record purchase of merchandise
in 2014)

Transaction 8
Sales Returns and Allowances ..................... 2,600
Accounts Receivable............................ 2,600
EXERCISE 8-6 (10–20 minutes)

2013 2014 2015

Sales $290,000 $360,000 $410,000
Sales Returns (11,000) (13,000) (20,000)
Net Sales 279,000 347,000 390,000
Beginning Inventory 20,000 32,000 37,000**
Ending Inventory (32,000*) (37,000) (44,000)
Purchases 242,000 260,000 298,000
Purchase Returns and Allowances (5,000) (8,000) (10,000)
Freight-in 8,000 9,000 12,000
Cost of Good Sold (233,000) (256,000) (293,000)
Gross Profit $ 46,000 $ 91,000 $ 97,000

*This was given as the beginning inventory for 2014.

**This was calculated as the ending inventory for 2014.

EXERCISE 8-7 (10–15 minutes)

(a) May 10 Purchases ........................................................................

14,700
Accounts Payable ...................................................14,700
($15,000 X .98)

May 11 Purchases ........................................................................

13,068
Accounts Payable ...................................................13,068
($13,200 X .99)

May 19 Accounts Payable ............................................................

14,700
Cash ........................................................................14,700

May 24 Purchases ........................................................................

11,270
Accounts Payable
($11,500 X .98) .......................................................11,270
EXERCISE 8-7 (Continued)

(b) May 31 Purchase Discounts Lost ................................................

132
Accounts Payable
($13,200 X .01) ...................................................... 132
(Discount lost on purchase of
May 11, $13,200, terms 1/15, n/30)

EXERCISE 8-8 (20–25 minutes)

(a) Feb. 1 Inventory [$10,800 – ($10,800 X 10%)] ............................

9,720
Accounts Payable ................................................... 9,720

Feb. 4 Accounts Payable [$2,500 –

($2,500 X 10%)] .............................................................
2,250
Inventory ................................................................. 2,250

Feb. 13 Accounts Payable ($9,720 – $2,250) ...............................

7,470
Inventory (3% X $7,470)..........................................224.10
Cash ........................................................................
7,245.90

(b) Feb. 1 Purchases [$10,800 – ($10,800 X 10%)] ..........................

9,720
Accounts Payable ................................................... 9,720

Feb. 4 Accounts Payable [$2,500 – ($2,500 X

10%)] ..............................................................................
2,250
Purchase Returns and Allowances ............................ 2,250

Feb. 13 Accounts Payable ($9,720 – $2,250) ...............................

7,470
Purchase Discounts (3% X $7,470) ............................. 224.10
Cash ........................................................................
7,245.90

(c) Purchase price (list) $10,800.00

Less: Trade discount (10% X $10,800) 1,080.00
Price on which cash discount based 9,720.00
Less: Cash discount (3% X $9,720) 291.60
Net price $ 9,428.40
EXERCISE 8-9 (15–25 minutes)

(a) Jan. 4 Accounts Receivable.......................................................

640
Sales Revenue(80 X $8).......................................... 640

Jan. 11 Purchases ($150 X $6) .....................................................

900
Accounts Payable ................................................... 900

Jan. 13 Accounts Receivable.......................................................

1,050
Sales Revenue (120 X $8.75) .................................. 1,050

Jan. 20 Purchases (160 X $7) .......................................................

1,120
Accounts Payable ................................................... 1,120

Jan. 27 Accounts Receivable.......................................................

900
Sales Revenue (100 X $9)....................................... 900

Jan. 31 Inventory ($7 X 110) .........................................................

770
Cost of Goods Sold .........................................................
1,750*
Purchases ($900 + $1,120) ..................................... 2,020
Inventory (100 X $5) ................................................ 500

*($500 + $2,020 – $770)

(b) Sales revenue ($640 + $1,050 + $900) $2,590

Cost of goods sold 1,750
Gross profit $ 840
EXERCISE 8-9 (Continued)

(c) Jan. 4 Accounts Receivable.......................................................

640
Sales Revenue (80 X $8)......................................... 640

Cost of Goods Sold .........................................................

400
Inventory (80 X $5) .................................................. 400

Jan. 11 Inventory ..........................................................................

900
Accounts Payable (150 X $6)..................................... 900

Jan. 13 Accounts Receivable.......................................................

1,050
Sales Revenue (120 X $8.75) ..................................1,050

Cost of Goods Sold .........................................................

700
Inventory ([(20 X $5) +
(100 X $6)] ............................................................ 700

Jan. 20 Inventory ..........................................................................

1,120
Accounts Payable (160 X $7) .................................1,120

Jan. 27 Accounts Receivable.......................................................

900
Sales Revenue (100 X $9)....................................... 900

Cost of Goods Sold .........................................................

650
Inventory [(50 X $6) +
(50 X $7)] .............................................................. 650

(d) Sales revenue $2,590

Cost of goods sold
($400 + $700 +$650) 1,750
Gross profit $ 840
EXERCISE 8-10 (10–15 minutes)

Current Year Subsequent Year

1. Working capital Overstated No effect
Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated

2. Working capital No effect No effect

Current ratio Overstated* No effect
Retained earnings No effect No effect
Net income No effect No effect

3. Working capital Overstated No effect

Current ratio Overstated No effect
Retained earnings Overstated No effect
Net income Overstated Understated

*Assume that the correct current ratio is greater than one.

EXERCISE 8-11 (10–15 minutes)

$370,000
(a) = 1.85 to 1
$200,000

$370,000 + $22,000 – $13,000 + $3,000 $382,000

(b) = = 2.06 to 1
$200,000 – $15,000 $185,000

(c) Adjust Income

Event Effect of Error Increase (Decrease)
1. Understatement of ending Decreases net income $22,000
inventory
2. Overstatement of purchases Decreases net income 15,000
3. Overstatement of ending Increases net income (13,000)
inventory
4. Overstatement of advertising
expense; understatement
of cost of goods sold 0
$24,000
EXERCISE 8-12 (15–20 minutes)

Errors in Inventories
Net Add Deduct Deduct Add
Income Overstate- Understate- Overstate- Understate- Corrected
Year Per Books ment Jan. 1 ment Jan. 1 ment Dec. 31 ment Dec. 31 Net Income
2009 $ 50,000 $3,000 $ 47,000
2010 52,000 $3,000 9,000 46,000
2011 54,000 9,000 $11,000 74,000
2012 56,000 $11,000 45,000
2013 58,000 2,000 60,000
2014 60,000 2,000 8,000 50,000
$330,000 $322,000

EXERCISE 8-13 (15–20 minutes)

(a) Units in ending inventory

Beginning balance 300
Purchase 1,300
Goods available 1,600
Sales (1,000)
Ending balance 600

Cost of Goods Sold Ending Inventory

(1) LIFO 500 @ $13 = $ 6,500 300 @ $10 = $3,000
500 @ $12 = 6,000 300 @ $12 = 3,600
$12,500 $6,600

(2) FIFO 300 @ $10 = $ 3,000 500 @ $13 = $6,500

700 @ $12 = 8,400 100 @ $12 = 1,200
$11,400 $7,700

(b) LIFO 100 @ $10 = $ 1,000

300 @ $12 = 3,600
200 @ $13 = 2,600
$ 7,200
EXERCISE 8-13 (Continued)

(c) Sales revenue $25,400 = ($24 X 200) + ($25 X 500) +

($27 X 300)
Cost of Goods Sold 11,400 = (200 @ $10) + (100 @ $10)
Gross Profit (FIFO) $14,000 + (400 @ $12) + (300 @ $12)

Note: FIFO periodic and FIFO perpetual provide the same gross profit
and inventory value.

(d) LIFO matches more current costs with revenue. When prices are
rising (as is generally the case), this results in a higher amount for
cost of goods sold and a lower gross profit. As indicated in this
exercise, prices were rising and cost of goods sold under LIFO was
higher.

EXERCISE 8-14 (20–25 minutes)

(a) (1) LIFO 600 @ $6.00 = $3,600

100 @ $6.08 = 608
$4,208

(2) Average cost

Total cost $33,655*

= = $6.35 average cost per unit
Total units 5,300

700 @ $6.35 = $4,445

*Units Price Total Cost

600 @ $6.00 = $ 3,600
1,500 @ $6.08 = 9,120
800 @ $6.40 = 5,120
1,200 @ $6.50 = 7,800
700 @ $6.60 = 4,620
500 @ $6.79 = 3,395
5,300 $33,655
EXERCISE 8-14 (Continued)

(b) (1) FIFO 500 @ $6.79 = $3,395

200 @ $6.60 = 1,320
$4,715

(2) LIFO 100 @ $6.00 = $ 600

100 @ $6.08 = 608
500 @ $6.79 = 3,395
$4,603

(c) Total merchandise available for sale $33,655

Less: Inventory (FIFO) 4,715
Cost of goods sold $28,940

(d) FIFO.

EXERCISE 8-15 (15–20 minutes)

(a) Shania Twain Company

COMPUTATION OF INVENTORY FOR PRODUCT
BAP UNDER FIFO INVENTORY METHOD
March 31, 2014
Units Unit Cost Total Cost
March 26, 2014 600 $12.00 $ 7,200
February 16, 2014 800 11.00 8,800
January 25, 2014 (portion) 200 10.00 2,000
March 31, 2014, inventory 1,600 $18,000

(b) Shania Twain Company

COMPUTATION OF INVENTORY FOR PRODUCT
BAP UNDER LIFO INVENTORY METHOD
March 31, 2014
Units Unit Cost Total Cost
Beginning inventory 600 $8.00 $ 4,800
January 5, 2014 (portion) 1,000 9.00 9,000
March 31, 2014, inventory 1,600 $13,800
EXERCISE 8-15 (Continued)

(c) Shania Twain Company

COMPUTATION OF INVENTORY FOR PRODUCT
BAP UNDER WEIGHTED-AVERAGE INVENTORY METHOD
March 31, 2014
Units Unit Cost Total Cost
Beginning inventory 600 $ 8.00 $ 4,800
January 5, 2014 1,200 9.00 10,800
January 25, 2014 1,300 10.00 13,000
February 16, 2014 800 11.00 8,800
March 26, 2014 600 12.00 7,200
4,500 $44,600

Weighted average cost

($44,600 ÷ 4,500) $ 9.91*

March 31, 2014, inventory 1,600 $ 9.91 $15,856

*Rounded off.

EXERCISE 8-16 (15–20 minutes)

(a) (1) 2,100 units available for sale – 1,400 units sold = 700 units in the
ending inventory.
500 @ $4.58 = $2,290
200 @ 4.60 = 920
700 $3,210 Ending inventory at FIFO cost.

(2) 100 @ $4.10 = $ 410

600 @ 4.20 = 2,520
700 $2,930 Ending inventory at LIFO cost.

(3) $9,240 cost of goods available for sale ÷ 2,100 units available for
sale = $4.40 weighted-average unit cost.
700 units X $4.40 = $3,080 Ending inventory at weighted-average
cost.
EXERCISE 8-16 (Continued)

(b) (1) LIFO will yield the lowest gross profit because this method will
yield the highest cost of goods sold figure in the situation
presented. The company has experienced rising purchase prices
for its inventory acquisitions. In a period of rising prices, LIFO will
yield the highest cost of goods sold because the most recent
purchase prices (which are the higher prices in this case) are used
to price cost of goods sold while the older (and lower) purchase
prices are used to cost the ending inventory.

(2) LIFO will yield the lowest ending inventory because LIFO uses the
oldest costs to price the ending inventory units. The company has
experienced rising purchase prices. The oldest costs in this case
are the lower costs.

EXERCISE 8-17 (10–15 minutes)

(a) (1) 400 @ $30 = $12,000

160 @ $25 = 4,000
$16,000

(2) 400 @ $20 = $ 8,000

160 @ $25 = 4,000
$12,000

(b) (1) FIFO $16,000 [same as (a)]

(2) LIFO 100 @ $20 = $ 2,000

60 @ $25 = 1,500
400 @ $30 = 12,000
$15,500
EXERCISE 8-18 (15–20 minutes)

First-in, first-out Last-in, first-out

Sales revenue $1,050,000 $1,050,000
Cost of goods sold:
Inventory, Jan. 1 $120,000 $120,000
Purchases 592,000* 592,000
Cost of goods available 712,000 712,000
Inventory, Dec. 31 (235,000**) (164,000***)
Cost of goods sold 477,000 548,000
Gross profit 573,000 502,000
Operating expenses 200,000 200,000
Net income $ 373,000 $ 302,000

*Purchases
6,000 @ $22 = $132,000
10,000 @ $25 = 250,000
7,000 @ $30 = 210,000
$592,000

**Computation of inventory, Dec. 31:

First-in, first-out:
7,000 units @ $30 = $210,000
1,000 units @ $25 = 25,000
$235,000

***Last-in, first-out:
6,000 units @ $20 = $120,000
2,000 units @ $22 = 44,000
$164,000
EXERCISE 8-19 (20–25 minutes)

Sandy Alomar Corporation

SCHEDULES OF COST OF GOODS SOLD
For the First Quarter Ended March 31, 2014
Schedule 1 Schedule 2 Last-in,
First-in, First-out First-out
Beginning inventory $ 40,000 $ 40,000
Plus purchases 146,200* 146,200
Cost of goods available for sale 186,200 186,200
Less: Ending inventory 61,300 56,800
Cost of goods sold $124,900 $129,400

*($33,600 + $25,500 + $38,700 + $48,400)

Schedules Computing Ending Inventory

Units
Beginning inventory 10,000
Plus purchases 34,000
Units available for sale 44,000
Less sales ($150,000 ÷ 5) 30,000
Ending inventory 14,000

The unit computation is the same for both assumptions, but the cost assigned to
the units of ending inventory are different.

First-in, First-out (Schedule 1) Last-in, First-out (Schedule 2)

11,000 at $4.40 = $48,400 10,000 at $4.00 = $40,000
3,000 at $4.30 = 12,900 4,000 at $4.20 = 16,800
14,000 $61,300 14,000 $56,800
EXERCISE 8-20 (10–15 minutes)

(a) FIFO Ending Inventory 12/31/14

76 @ $10.89* = $ 827.64
24 @ $11.88** = 285.12
$1,112.76

*[$11.00 – .01 ($11.00)]

**[$12.00 – .01 ($12.00)]

(b) LIFO Cost of Goods Sold—2014

76 @ $10.89 = $ 827.64
84 @ $11.88 = 997.92
90 @ $14.85* = 1,336.50
15 @ $15.84** = 237.60
$3,399.66

*[$15.00 – .01 ($15)]

**[$16.00 – .01 ($16)]

(c) FIFO matches older costs with revenue. When prices are declining, as in
this case, this results in a higher amount for cost of goods sold. Therefore,
it is recommended that FIFO be used by Johnny Football Shop to minimize
taxable income.

EXERCISE 8-21 (10–15 minutes)

(a) The difference between the inventory used for internal reporting purposes
and LIFO is referred to as the Allowance to Reduce Inventory to LIFO or the
LIFO reserve. The change in the allowance balance from one period to the
next is called the LIFO effect (or as shown in this example, the LIFO
adjustment).

(b) LIFO subtracts inflation from inventory costs by charging the items
purchased recently to cost of goods sold. As a result, ending inventory
(assuming increasing prices) will be lower than FIFO or average cost.
EXERCISE 8-21 (Continued)

(c) Cash flow was computed as follows:

Revenue $3,200,000
Cost of goods sold (2,800,000)
Operating expenses (150,000)
Income taxes (75,600)
Cash flow $ 174,400

If the company has any sales on account or payables, then the cash flow
number is incorrect. It is assumed here that the cash basis of accounting is
used.

(d) The company has extra cash because its taxes are less. The reason taxes
are lower is because cost of goods sold (in a period of inflation) is higher
under LIFO than FIFO. As a result, net income is lower which leads to lower
income taxes. If prices are decreasing, the opposite effect results.

EXERCISE 8-22 (25–30 minutes)

(a) (1) Ending inventory—Specific Identification

Date No. Units Unit Cost Total Cost
December 2 100 $30 $3,000
July 20 50 25 1,250
150 $4,250

(2) Ending inventory—FIFO

Date No. Units Unit Cost Total Cost
December 2 100 $30 $3,000
September 4 50 28 1,400
150 $4,400

(3) Ending inventory—LIFO

Date No. Units Unit Cost Total Cost
January 1 100 $20 $2,000
March 15 50 24 1,200
150 $3,200
EXERCISE 8-22 (Continued)

(4) Ending inventory—Average-Cost

No. Unit Total
Date Explanation Units Cost Cost
January 1 Beginning inventory 100 $20 $ 2,000
March 15 Purchase 300 24 7,200
July 20 Purchase 300 25 7,500
September 4 Purchase 200 28 5,600
December 2 Purchase 100 30 3,000
1,000 $25,300
$25,300 ÷ 1,000 = $25.30

Ending Inventory—Average-Cost
No. Units Unit Cost Total Cost
150 $25.30 $3,795

(b) Double Extension Method

Base-Year Costs Current Costs

Base-Year Current-Year
Units Cost Per Unit Total Units Cost Per Unit Total
150 $20 $3,000 100 $30 $3,000
50 $28 1,400
$4,400

Ending Inventory for the Period at Current Cost $4,400

= = 1.4667
Ending Inventory for the Period at Base-Year Cost $3,000

Ending inventory at base-year prices ($4,400 ÷ 1.4667) $3,000

Base layer (100 units at $20) (2,000)
Increment in base-year dollars 1,000
Current index 1.4667
Increment in current dollars 1,467
Base layer (100 units at $20) 2,000
Ending inventory at dollar-value LIFO $3,467
EXERCISE 8-23 (5–10 minutes)

$97,000 – $92,000 = $5,000 increase at base prices.

$98,350 – $92,600 = $5,750 increase in dollar-value LIFO value.
$5,000 X Index = $5,750.
Index = $5,750 ÷ $5,000.
Index = 115

EXERCISE 8-24 (15–20 minutes)

(a) 12/31/14 inventory at 1/1/14 prices, $140,000 ÷ 1.12 $125,000

Inventory 1/1/14 160,000
Inventory decrease at base prices $ 35,000

Inventory at 1/1/14 prices $160,000

Less decrease at 1/1/14 prices 35,000
Inventory 12/31/14 under dollar-value LIFO method $125,000

(b) 12/31/15 inventory at base prices, $172,500 ÷ 1.15 $150,000

12/31/14 inventory at base prices 125,000
Inventory increment at base prices $ 25,000

Inventory at 12/31/14 $125,000

Increment added during 2015 at 12/31/15 prices,
$25,000 X 1.15 28,750
Inventory 12/31/15 $153,750

EXERCISE 8-25 (20–25 minutes)

Change from
Current $ Price Index Base Year $ Prior Year
2011 $ 80,000 1.00 $ 80,000 —
2012 115,500 1.05 110,000 $+30,000
2013 108,000 1.20 90,000 (20,000)
2014 122,200 1.30 94,000 +4,000
2015 154,000 1.40 110,000 +16,000
2016 176,900 1.45 122,000 +12,000
EXERCISE 8-25 (Continued)

Ending Inventory—Dollar-value LIFO:

2011 $80,000 2015 $80,000 @ 1.00 = $ 80,000

10,000 @ 1.05 = 10,500
2012 $80,000 @ 1.00 = $ 80,000 4,000 @ 1.30 = 5,200
30,000 @ 1.05 = 31,500 16,000 @ 1.40 = 22,400
$111,500 $118,100

2013 $80,000 @ 1.00 = $ 80,000 2016 $80,000 @ 1.00 = $ 80,000

10,000 @ 1.05 = 10,500 10,000 @ 1.05 = 10,500
$ 90,500 4,000 @ 1.30 = 5,200
16,000 @ 1.40 = 22,400
2014 $80,000 @ 1.00 = $ 80,000 12,000 @ 1.45 = 17,400
10,000 @ 1.05 = 10,500 $135,500
4,000 @ 1.30 = 5,200
$ 95,700

EXERCISE 8-26 (15–20 minutes)

Change from
Date Current $ Price Index Base-Year $ Prior Year
Dec. 31, 2010 $ 70,000 1.00 $70,000 —
Dec. 31, 2011 90,300 1.05 86,000 $+16,000
Dec. 31, 2012 95,120 1.16 82,000 (4,000)
Dec. 31, 2013 105,600 1.20 88,000 +6,000
Dec. 31, 2014 100,000 1.25 80,000 (8,000)
EXERCISE 8-26 (Continued)

Ending Inventory—Dollar-value LIFO:

Dec. 31, 2010 $70,000

Dec. 31, 2011 $70,000 @ 1.00 = $70,000

16,000 @ 1.05 = 16,800
$86,800

Dec. 31, 2012 $70,000 @ 1.00 = $70,000

12,000 @ 1.05 = 12,600
$82,600

Dec. 31, 2013 $70,000 @ 1.00 = $70,000

12,000 @ 1.05 = 12,600
6,000 @ 1.20 = 7,200
$89,800

Dec. 31, 2014 $70,000 @ 1.00 = $70,000

10,000 @ 1.05 = 10,500
$80,500