Chapter 8: Question P8-10 (page 435)

Presented below is information related to Kaisson Corporation for the last 3 years.

Quantities Base-Year Cost Current-Year Cost

in Ending

Item Inventories Unit Cost Amount Unit Cost Amount

December 31, 2016

A 9,000 \(2.00 \)18,000 \(2.20 \)19,800

B 6,000 3.00 18,000 3.55 21,300

C 4,000 5.00 20,000 5.40 21,600

Totals \(56,000 \)62,700

December 31, 2017

A 9,000 \(2.00 \)18,000 \(2.60 \)23,400

B 6,800 3.00 20,400 3.75 25,500

C 6,000 5.00 30,000 6.40 38,400

Totals \(68,400 \)87,300

December 31, 2018

A 8,000 \(2.00 \)16,000 \(2.70 \)21,600

B 8,000 3.00 24,000 4.00 32,000

C 6,000 5.00 30,000 6.20 37,200

Totals \(70,000 \)90,800

Instructions

Compute the ending inventories under the dollar-value LIFO method for 2016, 2017, and 2018. The base period is January 1, 2016,and the beginning inventory cost at that date was $45,000. Compute indexes to two decimal places.

Short Answer

Expert verified

Dollar value LIFO for 2016, 2017, and 2018 are $57,320, $73,192, and$75,256 respectively. Price index are 112, 128, and 129 for given years, respectively.

Step by step solution

01

Price index schedule

Inventories at Current Year cost

/

Inventories at Base year cost

=

Price Index

Dec 2016

$62,700

/

$56,000

=

1.12 or 112%

Dec 2017

$87,300

/

$68,400

=

1.28 or 128%

Dec 2018

$90,800

/

$70,000

=

1.29 or 129%

02

Inventories at dollar value LIFO

Date

Ending inventory at base year

Layer

X

Price Index

=

Dollar value LIFO

2015

$45,000

$45,000

X

100

=

$45,000

2016

$56,000

$11,000

X

112

=

$12,320

$57,320

2017

$68,400

$12,400

X

128

=

$15,872

$73,192

2018

$70,000

$1,600

X

129

=

$2,064

$70,000

$75,256

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Most popular questions from this chapter

Bienvenu Enterprises reported cost of goods sold for 2017 of \(1,400,000 and retained earnings of \)5,200,000 at December 31, 2017. Bienvenu later discovered that its ending inventories at December 31, 2016 and 2017, were overstated by\(110,000 and \)35,000, respectively. Determine the corrected amounts for 2017 cost of goods sold and December 31, 2017,retained earnings.

Richardson Company cans a variety of vegetable-type soups. Recently, the company decided to value its inventories using dollar-value LIFO pools. The clerk who accounts for inventories does not understand how to valuethe inventory pools using this new method, so, as a private consultant, you have been asked to teach him how this new method works.

He has provided you with the following information about purchases made over a 6-year period.

Ending Inventory

Date (End-of-Year Prices) Price Index

Dec. 31, 2013 $ 80,000 100

Dec. 31, 2014 111,300 105

Dec. 31, 2015 108,000 120

Dec. 31, 2016 128,700 130

Dec. 31, 2017 147,000 140

Dec. 31, 2018 174,000 145

You have already explained to him how this inventory method is maintained, but he would feel better about it if you were to leavehim detailed instructions explaining how these calculations are done and why he needs to put all inventories at a base-year value.

Instructions

(a) Compute the ending inventory for Richardson Company for 2013 through 2018 using dollar-value LIFO.

(b) Using your computation schedules as your illustration, write a step-by-step set of instructions explaining how the calculationsare done. Begin your explanation by briefly explaining the theory behind this inventory method, includingthe purpose of putting all amounts into base-year price levels.

Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of goods sold using the LIFO method.

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.

Explain the following terms.

(a) LIFO layer.

(b) LIFO reserve.

(c) LIFO effect.

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