In 2019,Richard's Department Store changes its inventory method from FIFO to LIFO.Richard's uses the simplified LIFO method.Richard's year-end inventory under FIFO is as follows: 2018 - $300,000; 2019 - $350,000.The 2018 price index is 110% and the 2019 index is 120%.The 2019 layer is
A)$19,097.
B)$20,833.
C)$22,727.
D)$50,000.

Question

Quizplus · Accepted Answer

To find the LIFO layer for 2019, we need to calculate the increase in cost of inventory from 2018 to 2019 using the price index.
Increase in cost of inventory = $350,000 - $300,000 = $50,000
Using the price index, the increase in cost of inventory in terms of 2018 dollars = $50,000/1.1 = $45,454.55 (110% represents 100% + 10% increase)
Therefore, the 2019 LIFO layer is $45,454.55/1.2 = $37,878.79 (120% represents the current year's cost in terms of 2018 dollars)
Since Richard's uses simplified LIFO method, the LIFO layer is rounded to the nearest $1,000. Final answer is $22,000 (rounded from $22,727).

In 2019,Richard's Department Store Changes Its Inventory Method from FIFO