Question

Sandhill Company has used the dollar-value LIFO method since January 1, 2017. Sandhill uses internal price indexes and multiple pools. At the end of calendar year 2018, the following data are available for Sandhill’s inventory pool A. Inventory At Base-Year Cost At Current-Year Cost January 1, 2017 $1,000,000 $1,000,000 December 31, 2017 1,290,000 1,419,000 December 31, 2018 1,340,000 1,527,600 Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory in Pool A be reported at December 31, 2018?

Answer 1

1,376,000 and 1.027

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:-

Price Index = Current Year Cost ÷ Base Year Cost

Year Current Year Inventory Cost Divided Base Year Inventory Cost Price Index

January 1,2017 $1,000,000 ÷ $1,000,000 1

December 31,2017 $1,419,000 ÷ $1,290,000 1.1

December 31,2018 $1,527,600 ÷ $1,340,000 1.14

Ending Inventory At LIFO Cost = Layer at Base Price Year Inventory × Price Index

Dollar Value LIFO

Year Layer At Base Price Year Inventory($) Multiple Price Index Ending Inventory at LIFO Cost($)

2017

January 1,2017 1,000,000 × 1 1,000,000

December 31,2017 290,000 × 1.1 319,000

Total 1,290,000 1,319,000

2018

January 1,2017 1,000,000 × 1 1,000,000

December 31,2017 290,000 × 1.1 319,000

December 31,2018 50,000 × 1.14 57,000

1,340,000 1,376,000

Dollar Value LIFO Inventory = $1,376,000

Internal Price Index = Ending Inventory at LIFO Cost ÷ Layer at Base Year Price

= 1,376,000 ÷ 1,340,000

= 1.027

We simply used the above formulas