Question

Santa Cruz Company has used the dollar-value LIFO method since January 1, 2017. Santa Cruz uses internal price indexes and multiple pools. At the end of calendar year 2018, the following data are available for Santa Cruz's inventory pool A.

Inventory		At Base-Year Cost		At Current-Year Cost
January 1, 2017		$1,000,000		$1,000,000
December 31, 2017		1,230,000		1,353,000
December 31, 2018		1,280,000		1,459,200

Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory in Pool A be reported at December 31, 2018?

Answer 1

Solution:

We have data:

Inventory	At Base per cost	At current year cost
January 1, 2017	$1,000,000	$1,000,000
December 31, 2017	$1,230,000	$1,380,000
December 31, 2018	$1,280,000	$1,459,200

Price Index:

Price index for Dec. 31, 2017 :

$1,380,000 /$1,230,000

= 1.12

Price index for Dec. 31, 2018:

$1,459,200/$1,280,000

=1.14

Dollar value of LIFO inventory:

For Dec. 31, 2017:
Increase ($1,380,000 - $1,230,000)	$150,000
Dec. 31, 2017 price index	1.12
Increase in terms of	$168,000
Base inventory	$1,000,000
Dollar value LIFO inventory	$1, 168,000

For Dec. 31, 2018:
Increase ($1,459,200 - $1,280,000)	$179,200
Dec. 31, 2018, price index	1.14
Increase in terms of	$204,288
2017 layer	$168,000
Base inventory	$1,000,000

Dollar value LIFO inventory	$1,372,288