Question

Acute Company manufactures a single product. On December 31, 2014, it adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was determined to be $300,000. Inventory data for succeeding years follow:
Year Ended December 31 Inventory at Respective Year-End Prices Relevant Price Index (Base Year 2014)
2015 $363,000 1.10
2016 420,000 1.20
2017 430,000 1.25

Required:
Compute the inventory amounts at December 31, 2015, 2016, and 2017, using the dollar-value LIFO inventory method for each year.

Answer 1

Answer:

Acute Company

Year Ended December 31 Inventory at

Respective Year-End   Prices     Relevant Price Index   Dollar-value LIFO

2015                       $363,000      1.10                                 $330,000

2016                         420,000      1.20                                  350,000

2017                         430,000      1.25                                 344,000

Explanation:

a) Data and Calculations:

Year Ended December 31 Inventory at Respective Year-End Prices Relevant Price Index (Base Year 2014)

Year   Year-End Prices   Price Index

2015    $363,000           1.10

2016      420,000           1.20

2017      430,000           1.25

Dollar-value LIFO:

2015 = $363,000/1.10 =   $330,000

2016 = $420,000/1.20 = $350,000

2017 = $430,000/1.25 = $344,000

b) The implication is that the respective year-end prices are re-calculated using the 2014 base year index.  This prunes the effect of inflation on the most recent prices when compared to the base year of 2014.  It makes the ending inventories for the years to be comparable since the inflation-influenced cause has been removed.