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QUESTION 24 Dollar-Value LIFO Inventory: On January 1, year 1, Silver Industries Inc. adopted the dollar-value...

QUESTION 24

  1. Dollar-Value LIFO Inventory:

    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.
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Solutions

Expert Solution

Solution

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

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