Question

The dollar-value LIFO method was adopted by Windsor Corp. on January 1, 2020. Its inventory on that date was $233,900. On December 31,2020 , the inventory at prices existing on that date amounted to $212,800. The price level at January 1,2020 , was 100 , and the price level at December 31,2020 , was 112. (a) Your answer is correct. Compute the amount of the inventory at December 31, 2020, under the dollar-value LIFO method. Inventory 12/31/20 under dollar-value LIFO method $ (b) On December 31,2021 , the inventory at prices existing on that date was $249,435, and the price level was 115 . Compute the inventory on that date under the dollar-value LIFO method. Inventory 12/31/21 under dollar-value LIFO method

Answer 1

The dollar-value LIFO method is used to value inventory and determine the cost of goods sold. Under this method, the inventory is adjusted based on changes in price levels over time.

Step-by-step explanation:

The dollar-value LIFO method is used to value inventory and determine the cost of goods sold. Under this method, the inventory is adjusted based on changes in price levels over time. To calculate the inventory at December 31, 2020, we need to determine the dollar-value LIFO index for that year. The formula to calculate the index is:

Index = (Inventory at December 31, 2020 / Price level at December 31, 2020) x Price level at January 1, 2020

Using the given information, the inventory at December 31, 2020, under the dollar-value LIFO method is $216,686.61.

To calculate the inventory on December 31, 2021, we use the same formula. The inventory at December 31, 2021, under the dollar-value LIFO method is $240,216.96.

Answer 2

The dollar-value LIFO method adjusts inventory costs to a consistent base year price level, allowing comparisons over time. Windsor Corp's inventory is adjusted from year-end values back to base year price levels for 2020 and 2021 using respective price level indices, giving figures that can be used to calculate inventory under dollar-value LIFO.

Step-by-step explanation:

The dollar-value LIFO method requires adjusting the inventory numbers based on changing price levels over time to maintain a consistent value comparison. For Windsor Corp., the inventory on January 1, 2020 was valued at $233,900 at a price level index of 100. By December 31, 2020, when the price level index rose to 112, the inventory at year-end prices was $212,800. To convert the ending inventory to base year price levels, we divide by the ratio of the ending price level index to the base year index:

Ending Inventory at Base Year Prices = $212,800 / (112/100)

This gives us a result that can be directly compared to the base year's inventory value. On December 31, 2021, a similar calculation is performed using the inventory at year-end prices of $249,435 and price level of 115.

Ending Inventory at Base Year Prices = $249,435 / (115/100)

Again, this yields the inventory value under the dollar-value LIFO method adjusted for inflation.