Question

Gross Corporation adopted the dollar-value LIFO method of inventory valuation on Dec 31, 2016. Its inventory at that date was $1,100,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Date Inventory at Current Prices Current Price Index
December 31, 2017 $1,284,000 107
December 31, 2018 $1,450,000 125
Deceber 31, 2019 $1,625,500 130
1. What is the cost of ending inventory December 31, 2017 under Dollar-value LIFO method?
2. What is the cost of ending inventory December 31, 2018 under Dollar-value LIFO method?
3. What is the cost of ending inventory December 31, 2019 under Dollar-value LIFO method?

Answer 1

Answer:

1. $1,207,000

2. $1,164,200

3. $1,281,701

Explanation:

To calculate ending inventory under the dollar value LIFO method, the steps below shall be followed.

Step 1

Y = Current price at year end / Price index at that time

Step 2

Ending inventory = Opening inventory value + ( Y - Opening inventory value ) × Index value.

Gross corporation

Ending inventory

2016 1,100,000

1. Cost of ending inventory at 31, December 2017, under dollar value LIFO

= 1,284,000 / 1.07

= $1,200,000

Ending inventory

= $1,100,000 + ( $1,100,000 - $100,000 ) × 1.07

= $1,207,000

2. Cost of ending inventory at 31, December 2018, under dollar value LIFO

= $1,450,000/1.25

= $1,160,000

Ending inventory

= $1,100,000 + ( $1,160,000 - $1,100,000) × 1.07

= $1,164,200

3. Cost of ending inventory at 31, December 2019, under dollar value LIFO

= $1,625,500/1.30

= $1,250,385

Ending inventory

= $1,164,200 + $90,385 × 1.30

= $1,281,701