Question

Wavy Inc. is a calendar-year corporation. Its financial statements for the years 2017 and 2016 contained errors as follows:

	2017	2016
Ending Inventory	$9,000 overstated	$18,000 overstated
Depreciation Expense	$6,000 understated	$13,500 overstated

Assume that the proper correcting entries were made at December 31, 2016. By how much will 2017 income before taxes be overstated or understated?

$3,000 understated

$7,500 overstated

$10,500 overstated

$15,000 overstated

A new layer is formed under dollar-value LIFO when the ending inventory at:

end-of-year prices exceeds the beginning inventory at end-of-year prices.

end-of-year prices exceeds the beginning inventory at base-year prices.

base-year prices exceeds the beginning inventory at base-year prices.

current cost exceeds the beginning inventory at base-year cost.

Alexander Company had January 1 inventory of $150,000 when it adopted dollar-value LIFO. During the year, purchases were $900,000 and sales were $1,500,000. December 31 inventory at year-end prices was $189,750, and the price index was 110. What is Alexander Company’s gross profit?

$600,000.

$624,750.

$550,250.

$450,000.

Answer 1

Wavy Inc.
	In 2016 correct entry were made, so in 2017 income before taxes be overstated by ($9000+$6000)=$15000
	Ending Inventory in 2017 overstated result income overstated by	$          9,000.00
	Depreciation understated results income overstated by	$          6,000.00
Ans		$       15,000.00	Overstated
	A new layer is formed under dollar-value LIFO when the ending inventory at:
	base-year prices exceeds the beginning inventory at base-year prices.
	For Example Ending Inventory on 2018(Base year Price)	$       50,000.00
	Ending Inventory on 2019(Base year Price)	$       62,500.00
	Ending inventory at base year price Exceeds beginning inventory,so a new layer is formed.
	Alexander Company
	Gross Profit=Sales Price-Beginning Inventory+Purchases-Ending Inventory
	Sales Price	$ 15,00,000.00
	Beginning Inventory=($150000*110%)	$    1,65,000.00
	Purchases	$    9,00,000.00
	Ending Inventory	$    1,89,750.00
Ans)	$1500000-(($150000*110%)+$90000-$189750)	$    6,24,750.00