Exhibit 8-5 Sully Provisions Co.switched from FIFO to LIFO on January 1, 2010, for external reporting and income tax purposes, while retaining FIFO for internal reports.On that date, the FIFO inventory equaled $360, 000.The ensuing three-year period resulted in the following:
$\begin{array}{lll}
&\text { Inventory }&\text { Cost }\
\text {Date}&\text {Year-End Costs}&\text {Index}\
\text { December } 31,2010 & \$ 438,000 & 1.05 \
\text { December 31, } 2011 & 460,000 & 1.15 \
\text { December 31. } 2012 & 520,000 & 1.25
\end{array}$

-Refer to Exhibit 8-5.The ending inventory at December 31, 2012, using the dollar-value LIFO method would be
A)$422, 000
B)$402, 000
C)$426, 000
D)$420, 400

Question

Exhibit 8-5 Sully Provisions Co.switched from FIFO to LIFO on January 1, 2010, for external reporting and income tax purposes, while retaining FIFO for internal reports.On that date, the FIFO inventory equaled $360, 000.The ensuing three-year period resulted in the following:
$\begin{array}{lll}
&\text { Inventory }&\text { Cost }\
\text {Date}&\text {Year-End Costs}&\text {Index}\
\text { December } 31,2010 & \$ 438,000 & 1.05 \
\text { December 31, } 2011 & 460,000 & 1.15 \
\text { December 31. } 2012 & 520,000 & 1.25
\end{array}$
 
-Refer to Exhibit 8-5.The ending inventory at December 31, 2012, using the dollar-value LIFO method would be
A)$422, 000
B)$402, 000
C)$426, 000
D)$420, 400

Quizplus · Accepted Answer

To calculate the ending inventory using the dollar-value LIFO method, we need to first convert the inventory at base year (2010) to base year prices. 
Base year cost index for 2010 = 1.00 
2011: Cost of goods sold = 270,000, price index = 1.10, cost index = 1.00 
Ending inventory at current year prices = $120,000 / 1.10 = $109,091 
Ending inventory at base year prices = $109,091 / 1.00 = $109,091

2012: Cost of goods sold = 300,000, price index = 1.20, cost index = 1.10 
Ending inventory at current year prices = $120,000 / 1.20 = $100,000 
Ending inventory at base year prices = $100,000 / 1.10 = $90,909

Total ending inventory at base year prices = FIFO layer (as of January 1, 2010) + inventory remaining at base year prices 
= $360,000 + $90,909 = $450,909

Using dollar-value LIFO method, the ending inventory at December 31, 2012, would be $450,909 (Option A: $422,000).

Exhibit 8-5 Sully Provisions Co -Refer to Exhibit 8-5