Question

In 2019, Richard's Department Store changes its inventory method from FIFO to LIFO. Richard's uses the simplified LIFO method. Richard's year-end inventory under FIFO is as follows: 2018 - $300,000; 2019 - $350,000. The 2018 price index is 110% and the 2019 index is 120%. The 2019 layer is
A) $19,097.
B) $20,833.
C) $22,727.
D) $50,000.

Answer 1

Answer:

C) $22,727.

Explanation:

to calculate the 2019 layer, I will first determine the value of the 2019 inventory using LIFO:

(2018 inventory / 2018 price index) + (2019 inventory - 2018 inventory) = ($300,000 / 1.1) + ($350,000 - $300,000) = $272,727 + $50,000 = $322,727

to determine the LIFO layer = adjusted 2019 inventory - 2018 inventory = $322,727 - $300,000 = $22,727

The LIFO layer represents the difference in cost of goods sold from the ending of one year to the next year.