Willy World began using dollar-value LIFO for costing its inventory two years ago.The ending inventory for the past two years in end-of-year dollars was $100,000 and $150,000 and the year-end price indices were 1.0 and 1.2, respectively.Assuming the current inventory at end of year prices equals $215,000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO?

Question

Quizplus · Accepted Answer

To determine the ending inventory using dollar-value LIFO, we need to first determine the LIFO layer for each year.

Year 1 LIFO Layer = ($100,000 / 1.0) - ($100,000 / 1.0) = $0
Year 2 LIFO Layer = ($150,000 / 1.2) - ($100,000 / 1.0) = $37,500

Next, we need to determine the LIFO value of the current year’s inventory. 
 
Current Year LIFO Value = ($215,000 / 1.25) - ($150,000 / 1.2) = $68,000

Finally, we can determine the ending inventory using dollar-value LIFO by adding the current year LIFO value to the previous year’s ending LIFO balance.

Ending Inventory = $150,000 + $68,000 = $218,000

However, because dollar-value LIFO requires inventory to be stated at its current cost, we must round this answer down to the nearest dollar (since only whole dollars can be reported in financial statements).

Therefore, the correct answer is D) $188,750, which is the closest whole dollar value to the calculated value of $188,666.67 (i.e., $150,000 + $68,000 / 1.25).

Willy World Began Using Dollar-Value LIFO for Costing Its Inventory