Question

On January 1, 2024, a company adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $340,000. An internally generated cost index is used to convert ending inventory to base year. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows:

Year Ended Inventory Year- Cost Index (Relative
December 31 End Costs to Base Year)
2024 $ 434,700 1.05
2025 446,900 1.09
2026 502,700 1.10
2027 541,835 1.13

Calculate inventory amounts at the end of each year.

Answer 1

The company's inventory amounts at the end of each year under the dollar-value LIFO inventory method are calculated by adjusting the year-end costs with the cost index to determine base year costs and layering any increases. For the years 2024 to 2027, the ending inventories at base year costs are $414,000, $414,000 (no increase), $457,000, and $479,500, respectively.

Step-by-step explanation:

To calculate the ending inventory amounts using the dollar-value LIFO method, the ending inventory at year-end costs is divided by the cost index for the respective year to convert it to base year cost. The base year for this company is 2024 with an inventory value of $340,000. The following are the base year cost calculations:

Adjustments are made for any increases in inventory due to inflation or deflation, keeping the LIFO layers intact. The ending inventory values at base year costs are subsequently layered to get the dollar-value LIFO inventory amounts:

The final inventory amounts under dollar-value LIFO for each year-end are:

• 2024: $414,000
• 2025: $414,00
• 2026: $457,000
• 2027: $479,500