Arna, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow.

Year Ended December 31 Inventory at Current-Year Cost Price Index

2016 $19,750 100

2017 22,140 108

2018 25,935 114

Compute the value of the 2017 and 2018 inventories using the dollar-value LIFO method.

Short Answer

Expert verified

Using the dollar-value LIFO, the value of ending inventory at the end of 2017 and 2018 amounts to $20,560 and $23,125, respectively.

Step by step solution

01

Value of ending inventory for 2016 using dollar-value LIFO

As 2016 is the first year for converting dollar value LIFO and the index is also 100, the value of ending inventory at base year would be the same as given.

The computation would be as follow –

Endinginventoryatbaseyaerprices=InventoryatcurrentcostPriceIndex=$19,7501=$19,750

A layer is a difference between the ending base year price and the opening base year price.

Ending Inventory at base year prices

Layer at base year prices

X

Price Index

=

Ending Inventory at LIFO Cost

$19,750

$19,750

X

100

=

$19,750

Value of ending inventory at the end of 2016 using dollar-value LIFO amounts to $19,750.

02

Value of ending inventory for 2017 using dollar-value LIFO

Endinginventoryatbaseyaerprices=InventoryatcurrentcostPriceIndex=$22,1401.08=$20,500

Ending Inventory at base year prices

Layer at base year prices

X

Price Index

=

Ending Inventory at LIFO Cost

2016, $19,750

X

100

=

$19,750

$20,500

2017, + $750

X

108

=

+ $810

$20,500

$20,560

Value of ending inventory at the end of 2016 using dollar-value LIFO amounts to $20,560.

03

Value of ending inventory for 2018 using dollar-value LIFO

Endinginventoryatbaseyaerprices=InventoryatcurrentcostPriceIndex=$25,9351.14=$22,750

Ending Inventory at base year prices

Layer at base year prices

X

Price Index

=

Ending Inventory at LIFO Cost

2016, $19,750

X

100

=

$19,750

$22,750

2017, + $750

X

108

=

+ $810

2018, + $2,250

X

114

=

+ $2,565

$22,750

$23,125

The value of ending inventory at the end of 2016 using dollar-value LIFO amounts to $23,125.

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Most popular questions from this chapter

Assume that in an annual audit of Harlowe Inc. at December 31, 2017, you findthe following transactions near the closing date.

1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shippingroom on December 31, 2017. The customer was billed on that date and the machine excluded from inventory althoughit was shipped on January 4, 2018.

2. Merchandise costing \(2,800 was received on January 3, 2018, and the related purchase invoice recorded January 5. Theinvoice showed the shipment was made on December 29, 2017, f.o.b. destination.

3. A packing case containing a product costing \)3,400 was standing in the shipping room when the physical inventory wastaken. It was not included in the inventory because it was marked “Hold for shipping instructions.” Your investigationrevealed that the customer’s order was dated December 18, 2017, but that the case was shipped and the customer billedon January 10, 2018. The product was a stock item of your client.

4. Merchandise received on January 6, 2018, costing \(680 was entered in the purchase journal on January 7, 2018. The invoiceshowed shipment was made f.o.b. supplier’s warehouse on December 31, 2017. Because it was not on hand at December31, it was not included in inventory.

5. Merchandise costing \)720 was received on December 28, 2017, and the invoice was not recorded. You located it in thehands of the purchasing agent; it was marked “on consignment.”

Instructions

Assuming that each of the amounts is material, state whether the merchandise should be included in the client’s inventory, andgive your reason for your decision on each item.

The dollar-value LIFO method was adopted by Enya Corp. on January 1, 2017. Its inventory on that date was \(160,000. On December 31, 2017, the inventory at prices existing on that date amounted to \)140,000. Theprice level at January 1, 2017, was 100, and the price level at December 31, 2017, was 112.

Instructions

(a) Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO method.

(b) On December 31, 2018, the inventory at prices existing on that date was $172,500, and the price level was 115. Computethe inventory on that date under the dollar-value LIFO method.

You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have justbeen started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers,how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.”

Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the variousitems, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque,f.o.b. Albuquerque, and that the total invoice price of the goods in the car was \(35,300. The freight bill called for a payment of\)1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January.

Instructions

(a) Does your client have a liability that should be recorded at December 31? Discuss.

(b) Prepare a journal entry(ies), if required, to reflect any accounting adjustment required. Assume a perpetual inventory

system is used by your client.

(c) For what possible reason(s) might your client wish to postpone recording the transaction?

Question:Tori Amos Corporation began operations on December 1, 2016. The only inventory transaction in 2016 was the purchase of inventory on December 10, 2016, at a cost of \(20 per unit. None of this inventory was sold in 2016. Relevant information is as follows.

Ending inventory units

December 31, 2016 100

December 31, 2017, by purchase date

December 2, 2017 100

July 20, 2017 50 150

During the year, the following purchases and sales were made.

Purchases Sales

March 15 300 units at \)24 April 10 200

July 20 300 units at 25 August 20 300

September 4 200 units at 28 November 18 150

December 2 100 units at 30 December 12 200

The company uses the periodic inventory method.

Instructions

(a) Determine ending inventory under (1) specific identification, (2) FIFO, (3) LIFO, and (4) average cost.

(b) Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2017, purchase cost is the current cost of inventory. (Hint:The beginning inventory is the base layer priced at $20 per unit.)

Distinguish between product costs and period costs as they relate to inventory.

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