Exhibit 7-5 Sullivan Produce Co. switched from FIFO to LIFO on January 1, 2013, 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:
-Refer to Exhibit 7-5. The ending inventory at December 31, 2015, using the dollar-value LIFO method would be
A) $422,000
B) $402,000
C) $426,000
D) $420,400

Question

Exhibit 7-5 Sullivan Produce Co. switched from FIFO to LIFO on January 1, 2013, 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:  
-Refer to Exhibit 7-5. The ending inventory at December 31, 2015, using the dollar-value LIFO method would be
A) $422,000 
B) $402,000 
C) $426,000 
D) $420,400

Quizplus · Accepted Answer

The ending inventory at December 31, 2015, using the dollar-value LIFO method would be $422,000. This is because the dollar-value LIFO method uses a price index to adjust the cost of inventory over time. The price index is used to calculate the amount of inflation that has occurred since the inventory was purchased. The amount of inflation is then used to adjust the cost of the inventory to its current value.