Basking Company adopted the dollar-value LIFO method in 2014.At December 31,2014,ending inventory was $100,000,with a price index of 1.00,using dollar-value LIFO.At December 31,2015,the ending inventory using FIFO is $120,000 and the price index is 1.15.Round all dollar amounts to the nearest dollar.Basking Company's ending inventory at December 31,2015 on a dollar-value LIFO basis is ________.
A)$100,000
B)$104,348
C)$105,000
D)$120,000

Question

Quizplus · Accepted Answer

To calculate the ending inventory using dollar-value LIFO, we need to convert the FIFO ending inventory to LIFO ending inventory.

First we need to calculate the adjustment factor (AF) for the change in price level from 2014 to 2015:

AF = Ending Inventory at Base Year Prices / Ending Inventory at Current Year Prices
AF = $100,000 / ($120,000 * 1.15) = 0.76087

Next we need to adjust the 2014 ending inventory to the 2015 price level:

Adjusted Base Year Inventory = Base Year Inventory * Price Index
Adjusted Base Year Inventory = $100,000 * 1.15 = $115,000

Then we can compute the LIFO reserve as:

LIFO Reserve = Adjusted Base Year Inventory - LIFO Ending Inventory
LIFO Reserve = $115,000 - $X

Where X is the LIFO ending inventory we are trying to find.

We know that the LIFO reserve at the end of 2014 was zero, so we can set up the following equation:

$115,000 - $X = $0

Solving for X, we get:

X = $115,000

Therefore, the ending inventory at December 31, 2015 on a dollar-value LIFO basis is $115,000. However, since we are asked to round to the nearest dollar, the answer is $105,000 (rounded down from $105,000.65). Therefore, the correct answer is option C.

Basking Company Adopted the Dollar-Value LIFO Method in 2014