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In: Accounting

The following data are related to Copy, Paste, and Attach (CPA) Corp’s Ending Inventory (Inventory is...

The following data are related to Copy, Paste, and Attach (CPA) Corp’s Ending Inventory (Inventory is valued as of December 31 of each year provided, which is CPA Corp’s year-end):

Year Price Index Inventory at End-of-Year Prices
2015 100 $159196
2016 125 $263594
2017 150 $304976

Using the dollar-value LIFO method, what is the value of CPA Corp’s ending inventory on December 31, 2017?

Solutions

Expert Solution

Answer
First of all we have to calculate the ending inventories of each year at base year prices:
Lets take 2015 as base year with price index 100
Formula for inventory at base year prices (Inventory at year end*base year price)/current year price
For example: for year 2016 263594*100/125
Year Price Index Inventory at End-of-Year Prices Inventory value at base year prices
2015 100 $159,196 $159,196
2016 125 $263,594 $210,875
2017 150 $304,976 $203,317
Inventory at the end of year 2016
Compare the inventory of 2015 and 2016 at base year price,gives the increase of $(210875-159196) $51,679
Restating the inventory for year 2016 at price index $51679*125%          64,599
Inventory at Base Year Index Inventory at current year
Inventory 2015 $150,000                100 $150,000
Increase in 2016 $51,679                125 $ 64,599.00
2016 inventory Value $201,679 $214,599
Inventory at the end of year 2017
Compare the inventory of 2016 and 2017 at base year price,gives the decrease of $(203317-210875) ($7,558)
If there is a decrease we need to adjust it against the most recent increase in inventory(immediate last increase in inventory)
Hence a decrease of $7558 will be adjusted against an increase of $51679 equals to $44,121
Now reinstate the inventory of year 2017 at 2016 price index and not 2017 price index
Inventory at Base Year Index Inventory at current year
Inventory 2015 $150,000                100 $150,000
Adjustement in 2016 $44,121                125 $ 55,151.67
2017 inventory Value $194,121 $205,152
Remarks :No new layer of inevntory is added in case of decrease,only in case of current year ending inventory is greater than base year ending inventory,the inventory difference is reinstated at current year price index

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