Suppose that Badger's 2010 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2010 was 1.10. In determining the inventory balance should Badger report in its 12/31/10 balance sheet:
A)An additional layer of $23,000 is added to the 1/1/10 balance.
B)An additional layer of $22,000 is added to the 1/1/10 balance.
C)An additional layer of $11,000 is added to the 1/1/10 balance.
D)None of these is correct.$143,000/1.10 = $130,000.This includes the previous two layers, the first at $100,000 and the second at $20,000, plus another at $10,000.The third is then brought forward to 12/31/10 by $10,000 1.10 = $11,000.

Question

Quizplus · Accepted Answer

The ending inventory of $143,000 should be divided by the relative cost index of 1.10 to get the inventory at base-year cost, which is $130,000. Since the 1/1/10 balance already includes two layers of inventory, the difference of $130,000 and the sum of previous layers should be added as an additional layer. This is calculated as $130,000 - $100,000 - $20,000 = $10,000. Multiplying this by the relative cost index of 1.10 gives the additional layer to be included in the 12/31/10 balance sheet, which is $11,000. Therefore, the correct choice is C.

Suppose That Badger's 2010 Ending Inventory, Valued at Year-End Costs