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Chapter 8: Q. 8-21E (page 429)

The dollar-value LIFO method was adopted by Enya Corp. on January 1, 2017. Its inventory on that date was \(160,000. On December 31, 2017, the inventory at prices existing on that date amounted to \)140,000. Theprice level at January 1, 2017, was 100, and the price level at December 31, 2017, was 112.

Instructions

(a) Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO method.

(b) On December 31, 2018, the inventory at prices existing on that date was $172,500, and the price level was 115. Computethe inventory on that date under the dollar-value LIFO method.

Short Answer

Expert verified

The value of ending inventory at dollar value LIFO for 2017 and 2018 are $120,800 and $121,250, respectively.

Step by step solution

01

Value of ending inventory at 2017 end at dollar-value LIFO method

Endinginventoryatbaseyearprices=EndinginventoryatcurrentpricesPriceindexattheend=$140,0001.12=$125,000

Openinginventoryatbaseyearprices=OpeninginventoryatcurrentpricesPriceindexattheend=$160,0001=$160,000

As the ending inventory is lower than the opening inventory, the opening inventory at base value would be lowered by the layer at the dollar-value LIFO method.

Endinginventoryatdollar-valueLIFO=openinginventoriesatbaseprices-((openinginventoriesatbaseprices-endinginventoryatbaseprices)脳closingpriceindex)=$160,000(($160,000-$125,000)脳1.12)=$160,000-$39,200=$120,800

02

Value of ending inventory at 2018 end at dollar-value LIFO method

Endinginventoryatbaseyearprices=EndinginventoryatcurrentpricesPriceindexattheend=$172,5001.15=$150,000

Opening inventory for 2018 at base year prices = $125,000

Endinginventoryatdollar-valueLIFO=Endinginventoryatbaseprices-((Endinginventoriesatbaseprices-openinginventoryatbaseprices)脳closingpriceindex)=$150,000(($150,000-$125,000)脳1.15)=$150,000-$28,750=$121,250

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Most popular questions from this chapter

Ann M. Martin Company makes the following errors during the current year.

(Evaluate each case independently and assume ending inventory in the following year is correctly stated.)

1. Ending inventory is overstated, but purchases and related accounts payable are recorded correctly.

2. Both ending inventory and purchases and related accounts payable are understated. (Assume this purchase was recordedand paid for in the following year.)

3. Ending inventory is correct, but a purchase on account was not recorded. (Assume this purchase was recorded and paidfor in the following year.)

Instructions

Indicate the effect of each of these errors on working capital, current ratio (assume that the current ratio is greater than 1), retained earnings, and net income for the current year and the subsequent year.

What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated by the perpetual inventory records? Why?

Question:Included in the December 31 trial balance of Rivera Company are the following assets.

Cash \( 190,000 Work in process \)200,000

Equipment (net) 1,100,000 Accounts receivable (net) 400,000

Prepaid insurance 41,000 Patents 110,000

Raw materials 335,000 Finished goods 170,000

Prepare the current assets section of the December 31 balance sheet.A

Presented below is information related to Dino Radja Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2014 $ 80,000 100

December 31, 2015 115,500 105

December 31, 2016 108,000 120

December 31, 2017 122,200 130

December 31, 2018 154,000 140

December 31, 2019 176,900 145

Instructions

Compute the ending inventory for Dino Radja Company for 2014 through 2019 using the dollar-value LIFO method.

Question: In January 2017, Susquehanna Inc. requested and secured permission from the commissioner of the Internal Revenue Service to compute inventories under the last-in, first-out (LIFO) method and elected to determine inventory cost under the dollar-value LIFO method. Susquehanna Inc. satisfied the commissioner that cost could be accurately determined by use of an index number computed from a representative sample selected from the company鈥檚 single inventory pool.

Instructions

(a) Why should inventories be included in (1) a balance sheet and (2) the computation of net income?

(b) The Internal Revenue Code allows some accountable events to be considered differently for income tax reporting purposes and financial accounting purposes, while other accountable events must be reported the same for both purposes. Discuss why it might be desirable to report some accountable events differently for financial accounting purposes than for income tax reporting purposes.

(c) Discuss the ways and conditions under which the FIFO and LIFO inventory costing methods produce different inventory valuations. Do not discuss procedures for computing inventory cost.
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