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:
-What inventory balance should Badger report on its 12/31/2018 balance sheet?
A) $126,000
B) $121,000
C) $120,000
D) $100,000

Question

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:  
-What inventory balance should Badger report on its 12/31/2018 balance sheet?
A) $126,000 
B) $121,000 
C) $120,000 
D) $100,000

Quizplus · Accepted Answer

$126,000 ÷ 1.05 = $120,000. This includes two layers, the first at $100,000 and the second at $20,000. The second is then brought forward to 12/31/18 by $20,000 × 1.05 = $21,000.