Question

Canova Corporation adopted the dollar-value LIFO retail method on January 1, 2021. On that date, the cost of the inventory on hand was $20,000 and its retail value was $25,000. Information for 2021 and 2022 is as follows:

	Ending Inventory at Retail			Retail Price Index			Cost-to-Retail Percentage
Date
12/31/2021	$	35,000			1.25		82	%
12/31/2022	$	42,000			1.40		85	%

Required:
1. What is the cost-to-retail percentage for the inventory on hand at 1/1/2021?
2. Calculate the inventory value at the end of 2021 and 2022 using the dollar-value LIFO retail method.

Answer 1

Answer :-

1.

Cost-to-retail percentage= 20,000/25,000= 80%

2

2021
Ending Inventory at Year-end Retail Prices	Step 1- Ending Inventory at Base Year Retail Prices	Step 2 : Inventory Layers at Base Year Retail Prices	Step 3- Inventory Layers Converted to Cost
35,000	28,000	25,000	1.00 × 80 % = 20,000
		3000	1.25 x 82% = 3,075
Total ending inventory at dollar-value LIFO retail cost	$23,075

2022
Ending Inventoryat Year-end Retail Prices	Step 1- Ending Inventory at Base Year Retail Prices	Step 2 : Inventory Layers at Base Year Retail Prices	Step 3- Inventory Layers Converted to Cost
42,000	30,000	25,000	1.00 × 80 % = 20,000
		3,000	1.25 x 82% = 3,075
		2,000	1.40 x 85% = 2,380
Total ending inventory at dollar-value LIFO retail cost	$25,455