To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar-value LIFO retail:
A)Compare beginning and ending inventory amounts at current year prices.
B)Compare beginning and ending inventory amounts after adjusting both amounts to the average price level for the year.
C)Inflate beginning inventory amount to end of year prices and compare to ending inventory amount.
D)Deflate the ending inventory amount to beginning of year prices and compare to the beginning inventory amount.

Question

Quizplus · Accepted Answer

Deflating the ending inventory amount to beginning of year prices and comparing it to the beginning inventory amount will help determine if the increase in dollar value of inventory is due to increased quantities. This is because LIFO assumes that the most recent inventory purchases are sold first, so by deflating the ending inventory amount to the beginning of year prices, the quantities in the ending inventory can be compared to the quantities in the beginning inventory at the same price level. If the quantities have increased, then the increase in the dollar value of inventory can be attributed to increased quantities rather than price increases.

To Determine If an Increase in the Dollar Value of Inventory