Question

rr Co. adopted the dollar-value LIFO inventory method on December 31, Year 12.Farr's entire inventory constitutes a single pool. On December 31, Year 12, the inventorywas $480,000 under the dollar-value LIFO method. Inventory data for Year 13 are asfollows:12/31/13 inventory at year-end prices$660,000Relevant price index at year end (base year Year 12)110Using dollar value LIFO, Farr's inventory at December 31, Year 13 isa.$528,000.b.$612,000.c.$600,000.d.$660,000

Answer 1

b. $612,000

Step-by-step explanation:

Dec 31, 2013 inventory = $660,000

Value of Dec 31, 2013 inventory at base year (2012) prices = $660,000/110*100 = $600,000

The real-dollar quantity increase in inventory = ($600,000 - $480,000) = $120,000

Value of this real dollar quantity increase in inventory at Dec 31, 2013 prices= $120,000 * 110/100 = $132,000 (LIFO layer to the Dec 31, 2012 inventory)

Value of Dec 31, 2013 inventory = Dec 31, 2012 inventory + The value of LIFO layer formed

Value of Dec 31, 2013 inventory = $480,000 + $132,000

Value of Dec 31, 2013 inventory = $612,000