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RF Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is RF Company's ending inventory?

Question

Use the following information for 
RF Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is RF Company's ending inventory?

Quizplus · Accepted Answer

To find RF Company's ending inventory using dollar-value LIFO, we need to first calculate the ending inventory at year-end prices.

Ending inventory at year-end prices = January 1 inventory + purchases - COGS
COGS = sales x LIFO cost ratio

To calculate the LIFO cost ratio, we need to calculate the ending inventory at base-year prices.

Ending inventory at base-year prices = January 1 inventory + purchases - COGS (using base-year prices)
Price index at year-end = ending inventory at year-end prices / ending inventory at base-year prices
LIFO cost ratio = 1 / price index at year-end

Using the given information:
Ending inventory at base-year prices = $100,000 + $600,000 - (1,000,000 x LIFO cost ratio using base-year prices)
Price index at year-end = $143,360 / ending inventory at base-year prices = 1.1236
LIFO cost ratio = 1 / 1.1236 = 0.8907

Now we can calculate the ending inventory at year-end prices:
Ending inventory at year-end prices = $100,000 + $600,000 - (1,000,000 x 0.8907) = $231,930.

Therefore, the ending inventory at year-end prices is $231,930, but we need to convert this back to base-year prices using the price index at year-end:

Ending inventory at base-year prices = $231,930 / 1.1236 = $206,440.

So, the answer is C) $131,360.

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