Maple Company has used the LIFO method of inventory accounting since its inception in 2000. At December 31, 2006, the ending inventory was:

The company uses the periodic inventory system that assumes sales have been made from the last inventory units acquired during the year. Purchase prices for Maple Company’s inventory are adjusted twice a year by its supplier on January 1 and July 1.
Purchase and sales transactions for 2007 and 2008 were:

Other expenses totaled \($60,000\) in 2007 and \($66,000\) in 2008. Inventory purchase prices in effect during the last half of 2006 were \($2.40\) per unit.
Required:
1. Compute Maple Company's operating income on the LIFO historical cost basis for 2007 and 2008.
2. Compute Maple’ current cost income from continuing operations for 2007 and 2008.
3. Determine the total increases in current cost amounts (that is, unrealized cost savings or holding gains) occurring in 2007 and 2008.
4. What portion of the reported 2007 and 2008 LIFO income consisted of realized holding gains (that is, “inventory profits”)?

5. What was the dollar amount of Maple’s LIFO reserve at December 31, 2006? Compute the increases and decreases to the LIFO reserve in 2007 and 2008. Identify the cause for each increase and decrease.
6. LIFO, a method that supposedly is designed to keep inventory profits out of income, does not accomplish this result for Maple Company in either 2007 or 2008. Why?

Transcribed Image Text:

Base layer 5,000 units @ $1.00 $5,000 2002 layer 2,000 units @ $1.30 2,600 $7,600