Use the following information for
RF Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is RF Company's gross profit?

Question

Use the following information for 
RF Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is RF Company's gross profit?

Quizplus · Accepted Answer

First, we need to calculate the ending inventory at base-year prices. This is done by dividing the ending inventory at year-end prices by the price index: 
$143,360 / 1.12 = $128,000

Next, we need to calculate the cost of goods sold for the year. Since RF Company uses dollar-value LIFO, we need to determine the ending inventory at the beginning of the year (also at base-year prices): 
$100,000 / 1.00 = $100,000

The cost of goods sold is then calculated as: 
Beginning inventory + purchases - ending inventory 
$100,000 + $600,000 - $128,000 = $572,000

Finally, we can calculate gross profit as: 
Sales - Cost of goods sold 
$1,000,000 - $572,000 = $428,000

Therefore, the best choice is B.

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