In 2018, 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: 2017 - $300,000; 2018 - $350,000. The 2017 price index is 110% and the 2018 index is 120%. The 2018 layer is

Question

Quizplus · Accepted Answer

The 2018 layer under the simplified LIFO method is calculated by taking the difference in FIFO inventory between 2018 and 2017, then adjusting for the price index. The difference is $50,000 ($350,000 - $300,000). Adjusting for the 2018 price index (120%), the layer is $50,000 / 1.20 = $41,667. However, the correct calculation involves adjusting the difference by the change in index from 2017 to 2018, which is 120%/110% = 1.0909. Thus, $50,000 / 1.0909 = $22,727.

In 2018, Richard's Department Store Changes Its Inventory Method from FIFO