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 would Badger report on its 12/31/2020 balance sheet?
A) $128,000.
B) $129,800.
C) $153,600.
D) None of these answer choices are correct.

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 would Badger report on its 12/31/2020 balance sheet?
A) $128,000. 
B) $129,800. 
C) $153,600. 
D) None of these answer choices are correct.

Quizplus · Accepted Answer

$153,600 ÷ 1.20 = $128,000. This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2019. No additional layers are added in 2020 because the inventory in base year terms actually decreased in 2020. To get the 12/31/2020 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively.