Question

In: Accounting

Eastman Corporation manufactures one product. On December 31, 2018, Eastman adopted the dollar-value LIFO inventory method....

Eastman Corporation manufactures one product. On December 31, 2018, Eastman adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $850,000. Inventory data are as follows:

                Year                       Inventory @ Year-End Prices                       Price Index (base year 2018

                2019                       $1,180,000                                                                           1.05

                2020                       $1,940,000                                                                           1.15

                2021                       $1,800,000                                                                           1.25

1. Compute the inventory at December 31, 2019, 2020 and 2021, using the dollar-value LIFO method for each year, including the LIFO Reserve.

Please show computations.

2. Prepare the journal entries for the LIFO reserve for 2019 and 2020.

Solutions

Expert Solution

Solution 1:

Computation of inventory at base year prices and change from prior year
Year Inventory at end of year prices Price index Inventory at base year prices Change from Prior Years
2018 $850,000.00 100 $850,000 $0
2019 $1,180,000.00 105 $1,123,810 $273,810
2020 $1,940,000.00 115 $1,686,957 $563,147
2021 $1,800,000.00 125 $1,440,000 -$246,957
Computation of dollar value inventory - LIFO
Particulars Amount
December 31, 2018:
$850,000*1 $850,000
December 31, 2019:
$850,000*1 $850,000
$273,810*1.05 $287,501
Inventory at Dec 31, 2019 $1,137,501
December 31, 2020:
$850,000*1 $850,000
$273,810*1.05 $287,501
$563,147*1.15 $647,619
Inventory at Dec 31, 2020 $1,785,120
December 31, 2021:
$850,000*1 $850,000
$273,810*1.05 $287,501
$316,190*1.15 $363,619
Inventory at Dec 31, 2021 $1,501,119
Inventory at current cost $1,180,000 $1,940,000 $1,800,000
Less: Inventory at Dollar value LIFO $1,137,501 $1,785,120 $1,501,119
LIFO Reserve $42,500 $154,880 $298,881

Solution 2:

Journal Entries
Date Particulars Debit Credit
31-Dec-19 Cost of goods sold Dr $42,500.00
       To LIFO Reserve $42,500.00
(To record LIFO reserve adjustment)
31-Dec-20 Cost of goods sold Dr ($154,880 - $42,500) $112,380.00
       To LIFO Reserve $112,380.00
(To record LIFO reserve adjustment)

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