7.04 - DOLLAR VALUE LIFO

Question 1

7.04 - DOLLAR VALUE LIFO

Brock Co. adopted the dollar-value LIFO inventory method as of January 1, 20X1. A singleinventory pool and an internally computed price index are used to compute Brock’s LIFOinventory layers. Information about Brock’s dollar value inventory follows:

Date:Inv.@Base Yr | Inv.@CY cost | Inv.@ Dollar value LIFO:

1/1/X1: $40,000 | $40,000| $40,000
20X1 layer: $5,000| $14,000| $6,000
12/31/X1: $45,000| $54,000| $46,000
20X2 layer: $15,000| $26,000| ?
12/31/X2: $60,000| $80,000 | ?

What was Brock’s dollar value LIFO inventory at December 31, 20X2?

$60,000
$80,000
$74,000
$66,000

Answer 1

$66,000

Since ending inventory at base year cost is $60,000 and at current year cost is $80,000, the 20X2 layer of $15,000 can be converted to current year costs by:

$15,000 x $80,000/$60,000 = $20,000

Ending Inventory will consist of:

Base year layer - $40,000 at base year prices = $40,000

20X1 layer - $5,000 x $54,000/$45,000 = $6,000

20X2 layer - $15,000 x $80,000/$60,000 = $20,000

Total ending inventory is $66,000.