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Retail Corp adopted the dollar-value LIFO method on 1-1-2016 Date Year-end inventory at year-end cost Cost...

Retail Corp adopted the dollar-value LIFO method on 1-1-2016

Date	Year-end inventory at year-end cost	Cost index at date indicated	separate into layers and multiply by own index	sum recomputed layers
1-1-16	$3,420,000	1.00
12-31-16	$4,000,000	1.07
12-31-17	$4,100,000	1.10

Given the above information, please answer the following questions:

2A. What is the base inventory value ($)?
2B. What is the dollar-value LIFO inventory at 12-31-16?
2C. What is the dollar-value LIFO inventory at 12-31-17?

Expert Solution

2A Base inventory Value

Base inventory value would be the inventory reported at the end of the year, as the index given is also 1.

Inventory at date 1-1-16 can directly be taken as a base inventory value.

Base Inventory Value = $ 3,420,000

2B Dollar Value LIFO inventory at 12-31-16
Step 1: Compute the value of ending inventory taking out the effect of inflation i.e. at beginning of the year prices as follows:

= $ 4,000,000 x 1/1.07 = $ 3,738,318

Step 2: Compare the figure calculated in step 1 with opening inventory value to determine the increase or decrease

= $ 3,738,318 - $ 3,420,000 = $ 318,318

Step 3: Gross up the change determined in step 2 as per current year’s price index

= $ 318,318 x 1.07 = $ 340,600

Step 4: Now calculate the value of ending inventory by adding the value determined in step 3 in beginning inventory value:

= $ 3,420,000 + $ 340,600 = $ 3,760,600

2C Dollar Value LIFO inventory at 12-31-17

Step 1: Compute the value of ending inventory taking out the effect of inflation i.e. at beginning of the year prices as follows:

= $ 4,100,000 x 1/1.10 = $ 3,727,273

Step 2: Compare the figure calculated in step 1 with opening inventory value (calculated in 2B) to determine the increase or decrease

= $ 3,727,273 - $ 3,760,600 = $ 33,327 Credit

Step 3: Gross up the change determined in step 2 as per current year’s price index

= $ 33,327 x 1.1 = $ 36,660 Credit

Step 4: Now calculate the value of ending inventory by adding the value determined in step 3 in beginning inventory value:

= $ 3,760,600 - $ 36,660 = $ 3,723,940

ekkarill92 answered 1 year ago

Retail Corp adopted the dollar-value LIFO method on 1-1-2016. Date Year-end inventory at year-end cost Cost...

Retail Corp adopted the dollar-value LIFO method on 1-1-2016. Date Year-end inventory at year-end cost Cost index at date indicated 1-1-16 $2,340,000 1.00 12-31-16 $2,650,000 1.06 12-31-17 $2,680,000 1.10 Given the above information, please answer the following questions: 1A. What is the base inventory value ($)? 1B. What is the dollar-value LIFO inventory at 12-31-16? 1C. What is the dollar-value LIFO inventory at 12-31-2017?

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