Question

Sparky Company adopted Dollar Value LIFO (DVL) on January 1, 20x1 for its one inventory pool. The inventory's value on this date was $360,000. The ending inventory valued at year-end costs for 20x1, 20x2 and 20x3 are reported below along with the price index for each year:

Year	Ending Inventory at Year-end Costs	Specific Price Index
Dec 31, 20X1	$407,570	106
Dec 31, 20X2	$439,450	110
Dec 31, 20X3	$427,800	115

a. Determine the Ending Inventory value to be reported on Sparky's balance sheet dated December 31, 20x3 using DVL: $[Blank_1]

B.Using the information in Question #1 above, answer the following:

If Sparky purchased $1,250,000 of goods held in inventory during 20x3, determine COGS for the year ended December 31, 20x3 using Dollar Value LIFO.

Answer 1

Answer A)

Calculation of cost of ending inventory at December 31, 20X3 using dollar-value LIFO method

Calculation of changes in inventory from previous year

Date	Inventory at year end prices	Price Index (Percentage)	Inventory at base year prices	Change from previous year
January'1, 20X1	$360,000	100	$            360,000	-
December'31, 20X1	$407,570	106	$            384,500	$                 24,500
December'31, 20X2	$439,450	110	$            399,500	$                 15,000
December'31, 20X3	$427,800	115	$            372,000	$               (27,500)

Value of inventory:

January 1, 20X1:

Value of ending inventory = $ 360,000 X 1.00

                                               = $ 360,000

December 31, 20X1:

Value of ending inventory = ($ 360,000 X 1.00) + ($ 24,500 X 1.06)

                                               = $ 360,000 + $ 25,970

                                               = $ 385,970

December 31, 20X2:

Value of ending inventory = ($ 360,000 X 1.00) + ($ 24,500 X 1.06) + ($ 15,000 X 1.10)

                                               = $ 360,000 + $ 25,970 + $ 16,500

                                               = $ 402,470

December 31, 20X3:

Value of ending inventory = ($ 360,000 X 1.00) + ($ 12,000 X 1.06)

                                               = $ 360,000 + $ 12,720 (refer note)

                                               = $ 372,720

Note: in the year ended December 31, 20X3, the change of inventory value at base year prices from December 31, 20X2 is negative (i.e. $ 27,500) and its inventory value at base year price is even less than inventory at base year prices for year ended December 31, 20X1 . Therefore even for the year ended December 31, 20X3, January 1, 20X1 is taken as base year.

Answer B)

Calculation of cost of good sold for the year ended at December 31, 20X3

Cost of goods sold = Opening balance inventory + Purchases – Closing balance of inventory

                                   = $ 402,470 + $ 1,250,000 - $ 372,720

                                 = $ 1,279,750