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Chapter 8: Q. 8-23E (page 429)

The following information relates to the Jimmy Johnson Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2013 $ 70,000 100

December 31, 2014 90,300 105

December 31, 2015 95,120 116

December 31, 2016 105,600 120

December 31, 2017 100,000 125

Instructions

Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2013 through 2017.

Short Answer

Expert verified

The ending inventory for Dec 2013and 2014 at dollar value LIFO comes out to be $70,000 and $80,500. Due to the negative layer adjustment, the value of inventory from 2014 to 2017 would be the same.

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 2013

$70,000

/

100

=

$70,000

Dec 2014

$90,300

/

105

=

$86,000

Dec 2015

$95,120

/

116

=

$82,000

Dec 2016

$105,600

/

120

=

$88,000

Dec 2017

$100,000

/

125

=

$80,000

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 2013

$70,000

$70,000

X

100

=

$70,000

Dec 2014

$86,000

$10,000

X

105

=

$10,500

$80,500

Dec 2015

$82,000

Dec 2016

$88,000

Dec 2017

$80,000

$80,500

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 at the base value ($16,000-$4,000), 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. In 2018 again, the inventory at the end was lower than the inventory at the beginning. So the negative layer would be peeled off from the previous assed layers. ($8,000 would be deducted from the 2017 layer of $6,000 and the 2015 layer of $12,000.

As a result, there would be only two layers of $70,000 and $10,000. The value of ending inventory in 2018 would be $80,500.

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Most popular questions from this chapter

Colin Davis Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, which is debited for materials purchased and credited for materials requisitioned for use.

1. An invoice for \(8,100, terms f.o.b. destination, was received and entered January 2, 2017. The receiving report shows that the materials were received December 28, 2016.

2. Materials costing \)28,000, shipped f.o.b. destination, were not entered by December 31, 2016, 鈥渂ecause they were in a railroad car on the company鈥檚 siding on that date and had not been unloaded.鈥�

3. Materials costing \(7,300 were returned to the supplier on December 29, 2016, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier鈥檚 place of business until January 6, 2017.

4. An invoice for \)7,500, terms f.o.b. shipping point, was received and entered December 30, 2016. The receiving report shows that the materials were received January 4, 2017, and the bill of lading shows that they were shipped January 2, 2017.

5. Materials costing $19,800 were received December 30, 2016, but no entry was made for them because 鈥渢hey were ordered with a specified delivery of no earlier than January 10, 2017.鈥�

Instructions -

Prepare correcting general journal entries required at December 31, 2016, assuming that the books have not been closed.

Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of

goods sold using the FIFO method.

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.

Explain the following terms.

(a) LIFO layer.

(b) LIFO reserve.

(c) LIFO effect.

Question:Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost \(34 each. During June, the company purchased 150 units at \)34 each, returned 6 units for credit, and sold 125 units at $50 each.

Journalize the June transactions.
See all solutions

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