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The dollar-value LIFO method was adopted by Riverbed Corp. on January 1, 2017. Its inventory on...

The dollar-value LIFO method was adopted by Riverbed Corp. on January 1, 2017. Its inventory on that date was $220,000. On December 31, 2017, the inventory at prices existing on that date amounted to $201,600. The price level at January 1, 2017, was 100, and the price level at December 31, 2017, was 112.

Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO method.

Inventory 12/31/17 under dollar-value LIFO method

On December 31, 2018, the inventory at prices existing on that date was $237,245, and the price level was 115.

Compute the inventory on that date under the dollar-value LIFO method.

Inventory 12/31/18 under dollar-value LIFO method

Solutions

Expert Solution

Answer 1:

Inventory Value on Jan, 1st 2017 was 220000 at price level 100

Inventory value on Dec. 31st 2017 was 201600 at price level 112

LIFO is last in first out. last item of inventory purchased will be sold first. So, here the inventory bought in 2017 will be sold first and then previous inventory will be sold.

Ending inventory value at base year cost is

Value of inventory(201600)/ Base year factor(112/100) = (201600/1.12) = 180,000

Current year LIFO layer (Inventory added in the current year price) 180000-220000 = -40000 which means inventory layer liquidation has happened

As layer liquidation has happened ,Amount of Inventory under dollar value LIFO method on 31st Dec 2017 would simply be

Value of inventory at base price * Base price factor

base price factor is 1.00 here only

180000*1.00 = $180,000

Answer 2: Adjust 2018 Dec 31 Price to 1st January 2017 Price first

Ending inventory value at base year cost is Value of inventory(237245)/ Base year factor(115/100) = (237245/1.15) = 206,300

Current year LIFO layer = 206300 - Value at 31st Dec.2017 = 206300 -180000 = 26300 layer is present

LIFO Layer Price at end of 31st Dec. 2018 is

31st Dec.2017 price * base year factor(1.00) = 180,000

31st Dec.2018 LIFO layer price * price factor at end of 2018 (115/100)= 26300 *1.15 = 30245

Total inventory value under LIFO on 31st Dec.2018 is $210,245

jeff jeffy answered 1 year ago
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