Question

The Genworth Company adopted the dollar-value LIFO method on January 1, 2021 when the inventory value of its one inventory pool was $522,000. The company decided to use an external index, the Consumer Price Index (CPI), to adjust for changes in the cost level. On January 1, 2021, the CPI was 240. On December 31, 2021, inventory valued at year-end cost was $588,000 and the CPI was 252.

Required:

1. Calculate the inventory value at the end of 2021 using the dollar-value LIFO method.

Answer 1

$561,900

Step-by-step explanation:

The computation of inventory value at the end is shown below:-

Inventory at base year price = Inventory valued at year-end cost × Jan 1 CPI ÷ End CPI

= $588,000 × 240 ÷ 252

= $560,000

Change from prior year = Inventory at base year price - Inventory pool

= $560,000 - $522,000

= $38,000

Dollar value inventory = Inventory pool + (Change from prior year × End CPI ÷ Jan 1 CPI)

= $522,000 + ($38,000 × 252 ÷ 240)

= $522,000 + $39,900

= $561,900