Reconstructing underlying events from ending inventory amounts. (Adapted from CPA examination.) Burch Corporation began a merchandising business on January 1, 2006. It acquired merchandise costing $100,000 in 2006, $125,000) in 2007, and $135,000 in 2008. Information about Burch Corporation€™s inventory as it would appear on the balance sheet under different inventory methods follows:

In answering each of the following questions, indicate how you deduced the answer. You may assume that in any one year, prices moved only up or down but not both.
a. Did prices go up or down in 2006?
b. Did prices go up or down in 2008?
c. Which inventory method would show the highest income for 2006?
d. Which inventory method would show the highest income for 2007?
e. Which inventory method would show the highest income for 2008?
f. Which inventory method would show the lowest income for all three years considered as a single period?
g. For 2008, ho much higher or lower would income be on the FIFO cost-flow assumption than on the lower-of-cost-or-marketbasis?

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Balance Sheet Inventory Amounts Lower of Cost December 31 2006. FIFO Cost or Market LIFO Cost $40,200 $40,000 $37,000 34,000 44,000 2007. 2008 36,400 41,800 36,000 44,000