Question

On January 1, year 1, Silver Industries Inc. adopted the dollar-value LIFO method of determining inventory costs for financial and income tax reporting. The following information relates to this change:

Silver has continued to use the FIFO method, which approximates current costs, for internal reporting purposes. Silver's FIFO inventories at December 31, year 1, year 2, and year 3 were $100,000, $137,500, and $195,000, respectively.

The FIFO inventory amounts are converted to dollar-value LIFO amounts using a single inventory pool and cost indices developed using the link-chain method. Silver estimated that the current year cost change indices, which measure year-to-year cost changes, were 1.25 for year 2 and 1.20 for year 3.

Complete the following schedule by double-clicking in the associated shaded cell and entering the appropriate value. Enter all amounts as positive values. Enter index values to two decimal places.

Year	FIFO inventory	Current year cost change index	Link-chain cost index	Inventory at base year costs
1	$100,000	1.00	1.00	$100,000
2	137,500	1.25	[1____]	[2____]
3	195,000	1.20	[3____]	[4____]
Year	LIFO inventory layers at base year costs	Link-chain cost index	Year 2 dollar-value LIFO inventory	Year 3 dollar-value LIFO inventory
1	$100,000	1.00	$100,000	$100,000
2	[5____]	[6____]	[7____]	[8____]
3	[9____]	[10___]		[11___]
	[12___]		[13___]	[14___]

Note: Please enter your responses below. Find a way to make them correspond with the number within the table and separate them with semicolons. Use the following examples for [1____], [2____], and [3____] as a reference for formulating your responses:

Example A: (1)555,000; (2)90,555; (3)1,234;
Example B: 1--555,000; 2--90,555; 3--1,234;
Example C: 1 = 555,000; 2 = 90,555; 3 = 1,234;

Be sure that your answers are clear to your Instructor with whichever method you choose.

Answer 1

To calculate Chain cost index we will multiply current year year indices with last year indices.

year 1 = 1.00*1.00 = 1.00

year 2 = 1.00*1.25 = 1.25

year 3 = 1.20*1.25.=1.50

Now to calculate base year costs , we will divide fifo inventory with chain indices

year 1 = 100000/1.00 = 100000

year 2 = 137500/1.25 = 110000

year 3 = 195000/1.50 = 130000

Now to calculate layers we will deduct last year base cost from current year base inventory

year 1 = 100000-0 = 100000

year 2 = 110000 - 100000 = 10000

year 3 = 130000 - 110000 = 20000

Now to calculate lifo inventory we will multiply sepecific layers with that year cost indicices.

Year	Fifo inventory	Current year cost change ind.	Link chain cost indices	Inventory at base year
1	100000	1.00	1.00	100000
2	137500	1.25	1.25	110000
3	195000	1.20	1.5	130000

Year	Lifo inventory Layers @ base year	Link chain cost indices	Year 2 dollor value lifo inventory	Year 3 dollor value lifo inventory
1	100000	1.00	100000	100000
2	10000	1.25	12500	12500
3	20000	1.50	nil	30000
	TOTAL		112500	142500