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Chapter 8: Q. 8-22E (page 429)

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.

Short Answer

Expert verified

The ending inventory for Dec 2019 at dollar value LIFO comes out to be $135,500.

Step by step solution

01

Computation of ending inventory at base year prices

Date

Ending Inventory at current year prices

/

Price Index

=

Ending inventory at base year prices

Dec 2014

$80,000

/

100

=

$80,000

Dec 2015

$115,500

/

105

=

$110,000

Dec 2016

$108,000

/

120

=

$90,000

Dec 2017

$122,200

/

130

=

$94,000

Dec 2018

$154,000

/

140

=

$110,000

Dec 2019

$176,900

/

145

=

$122,000

02

Value of ending inventory at dollar-value LIFO method

Date

Ending Inventory at base year prices

Layer at base year Prices

X

Price Index

=

Ending inventory at dollar value LIFO

Dec 2014

$80,000

$80,000

X

100

=

$80,000

Dec 2015

$110,000

$10,000

X

105

=

$10,500

$90,500

Dec 2016

$90,000

Dec 2017

$94,000

$4,000

X

130

=

$5,200

$95,700

Dec 2018

$110,000

$16,000

X

140

=

$22,400

$118,100

Dec 2019

$122,000

$12,000

X

145

=

$17,400

$135,500

Note:- The ending inventory in Dec 2016 is lower than the ending inventory in Dec 2015. So, the reduction value would be adjusted in the 2015 layer, and no inventory value would be computed for 2016. The second and third layers would be the same, and inventory value for 2016 would be the same as inventory value for 2015.

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Most popular questions from this chapter

Assume that in an annual audit of Harlowe Inc. at December 31, 2017, you findthe following transactions near the closing date.

1. A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shippingroom on December 31, 2017. The customer was billed on that date and the machine excluded from inventory althoughit was shipped on January 4, 2018.

2. Merchandise costing \(2,800 was received on January 3, 2018, and the related purchase invoice recorded January 5. Theinvoice showed the shipment was made on December 29, 2017, f.o.b. destination.

3. A packing case containing a product costing \)3,400 was standing in the shipping room when the physical inventory wastaken. It was not included in the inventory because it was marked 鈥淗old for shipping instructions.鈥� Your investigationrevealed that the customer鈥檚 order was dated December 18, 2017, but that the case was shipped and the customer billedon January 10, 2018. The product was a stock item of your client.

4. Merchandise received on January 6, 2018, costing \(680 was entered in the purchase journal on January 7, 2018. The invoiceshowed shipment was made f.o.b. supplier鈥檚 warehouse on December 31, 2017. Because it was not on hand at December31, it was not included in inventory.

5. Merchandise costing \)720 was received on December 28, 2017, and the invoice was not recorded. You located it in thehands of the purchasing agent; it was marked 鈥渙n consignment.鈥�

Instructions

Assuming that each of the amounts is material, state whether the merchandise should be included in the client鈥檚 inventory, andgive your reason for your decision on each item.

Midori Company had ending inventory at end-of-year prices of \(100,000 at December 31, 2016; \)119,900 at December 31, 2017; and $134,560 at December 31, 2018. The year-end price indexes were 100 at 12/31/16, 110 at 12/31/17,and 116 at 12/31/18. Compute the ending inventory for Midori Company for 2016 through 2018 using the dollar-valueLIFO method.

What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?

Hull Company鈥檚 record of transactions concerning part X for the month of April was as follows.

Purchases Sales

April 1 (balance on hand) 100 @ $5.00 April 5 300

4 400 @ 5.10 12 200

11 300 @ 5.30 27 800

18 200 @ 5.35 28 150

26 600 @ 5.60

30 200 @ 5.80

Instructions

(a) Compute the inventory at April 30 on each of the following bases. Assume that perpetual inventory records are kept inunits only. Carry unit costs to the nearest cent.

(1) First-in, first-out (FIFO).

(2) Last-in, first-out (LIFO).

(3) Average cost.

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, what amountwould be shown as ending inventory in (1), (2), and (3) above? (Carry average unit costs to four decimal places.)

Shania Twain Company was formed on December 1, 2016. The following information is available from Twain鈥檚 inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).
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