Trip Corp. began business in 2013. On December 31, 2013, Trip's single pool of inventory was valued at $300,000, using the dollar-value LIFO inventory method. On December 31, 2014, the value of Trip's inventory at current costs was $450,000. The 2014 year-end cost index was 120. What was the value of Trip's inventory at the end of 2014, using the dollar-value LIFO method?
A) $375,000
B) $390,000
C) $480,000
D) $540,000

Question

Quizplus · Accepted Answer

To compute the ending inventory using the dollar-value LIFO method, we need to adjust the base year inventory to current year prices, which gives us a LIFO layer added or absorbed during the year. 
2013 base year inventory = $300,000 
Current year price index = 120/100 = 1.20 
Adjustment factor for 2013 inventory = 1.20 
Adjusted base year inventory = $300,000 × 1.20 = $360,000

Now we need to find the LIFO layer added in 2014. 
LIFO layer added in 2014 = $450,000 – $360,000 = $90,000

Therefore, the ending inventory at LIFO cost will be the adjusted base year inventory ($360,000) plus the LIFO layer added during the year ($90,000) = $450,000, which is choice B.

Trip Corp Began Business in 2013