Question

Company X has the following information:

-Inventory at end-of-year prices of $1,300,000 (2018 – base year), $1,450,000 (2019), and $1,350,000 (2020)

-The price index is 105 in 2019 and 107 in 2020

Use the dollar-value LIFO method to calculate ending inventory for 2019 and 2020.

Answer 1

	2019	2020
Dollar Value LIFO Method	$ 1,385,000	$ 1,257,381

Explanation:

( 1)

Dollar Value LIFO Method:

Year	Ending Inventory	Base Year	Inventory at base year price	Change From Prior Year	Working
2018	$ 1,300,000	100	$ 1,300,000	0
2019	$ 1,450,000	105	$1,380,952.38095	80,952.38095	(1380952-1300000)
2020	$ 1,350,000	107	$1,261,682.24299	( 119,270.13796)	( 1261682.24299-1,380,952.38095)

Working

1) Inventory at base year prices = Inventory at end of year prices / Price index

2)

• December 2018: $1,300,000 / 1.00 = $ 1,300,000
• December 2019: $1,450,000/1.05 = $ 1,380,952.38095
• December 2020: $1,350,000/1.07= $ 1,261,682.24299

3) LIFO Inventory:

2019

1,300,000 × 1	$ 1,300,000
80,952.38095 ×1.05	$ 85,000
Total	$ 1,385,000

2020

1,300,000 ×1	$1,300,000
80,952.38095 ×1.05	$85,000
(119,270.13796 ×1.07)	( 127,619.047617)
Total	$ 1,257,380 .95239