Question

On December 31, 2018, the Charlie Company adopted the dollar-value LIFO inventory method. Inventory at the end of 2018 for its only inventory pool was $500,000 under the dollar-value LIFO method. At the end of 2019 inventory at year-end cost is $672,000 and the cost index is 1.05. Inventory at the end of 2019 at dollar-value LIFO cost is:

Answer 1

$647000

Step-by-step explanation:

The dollar-value LIFO method is used to calculate the ending inventory that is made on the basis of yearly changes to the dollar value of inventory after making some changes caused by inflation.

Given that,

Cost index= 1.05

2019 end cost= $627000

End of 2019 inventory = $627000/1.05

= $640000

The increase in the end of 2018 at the end of 2018 dollars is:

$640000-$500000

=$140,000

Therefore, the inventory at the end of 2019 at dollar-value LIFO cost is:

$140000 × 1.05 - $500000

= $647000

Answer 2

$647000

Step-by-step explanation:

Given that

Inventory at end of 2018 = 500,000

2019 cost = year end cost ÷ cost index

= 672000 ÷ 1.05

= 640000

Therefore,

Inventory end of 2018

= 640000 - 500000

= 140000

End of 2019 at dollar value inventory cost

= 140000 × 1.05 + 500000

= 147000 + 500000

= $647000