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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

Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye.

Date Transaction Quantity Price/Cost

1/1 Beginning inventory 1,000 $12

2/4 Purchase 2,000 18

2/20 Sale 2,500 30

4/2 Purchase 3,000 23

11/4 Sale 2,200 33

Instructions

Compute cost of goods sold, assuming Ehlo uses:

(a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow.

(b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average

cost flow.

(c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average

cost flow.

The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.

Sales 21,000 units @ \(50

Inventory, January 1 6,000 units @ 20

Purchases 6,000 units @ 22

10,000 units @ 25

7,000 units @ 30

Inventory, December 31 8,000 units @ ?

Operating expenses \)200,000

Instructions

Prepare a condensed income statement for the year on both bases for comparative purposes.

As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a period of falling prices?

Presented below are transactions related to Tom Brokaw, Inc.

May 10 Purchased goods billed at \(15,000 subject to cash discount terms of 2/10, n/60.

11 Purchased goods billed at \)13,200 subject to terms of 1/15, n/30.

19 Paid invoice of May 10.

24 Purchased goods billed at $11,500 subject to cash discount terms of 2/10, n/30.

Instructions

(a) Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as financial expense.

(b) Assuming no purchase or payment transactions other than those given above, prepare the adjusting entry required on May 31 if financial statements are to be prepared as of that date.

Question:Stallman Company took a physical inventory on December 31 and determined that goods costing \(200,000 were on hand. Not included in the physical count were \)25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and \(22,000 of goods sold to Alvarez Company for \)30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale werein transit at year-end. What amount should Stallman report as its December 31 inventory?
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