Use the following information for
Ely 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 $126,500, and the price index was 110.
-What is Ely Company's gross profit?
A)$415,000.
B)$416,500.
C)$426,500.
D)$883,500.

Question

Use the following information for 
Ely 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 $126,500, and the price index was 110.
-What is Ely Company's gross profit?
A)$415,000.
B)$416,500.
C)$426,500.
D)$883,500.

Quizplus · Accepted Answer

First, we need to calculate the ending inventory at base year prices:
Ending inventory at year-end prices = $126,500
Price index = 110
Ending inventory at base year prices = Ending inventory at year-end prices / price index = $126,500 / 1.10 = $115,000

Next, we need to calculate the Cost of Goods Sold (COGS) using dollar-value LIFO:
COGS = Inventory at base year prices + Purchases - Ending inventory at base year prices
COGS = $100,000 + $600,000 - $115,000 = $585,000

Finally, we can calculate gross profit:
Gross profit = Sales - COGS
Gross profit = $1,000,000 - $585,000 = $415,000

Therefore, the best choice is B ($416,500).

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