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Hay 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 $126,500, and the price index was 110.
-What is Hay Company's ending inventory?

Question

Quizplus · Accepted Answer

To calculate the ending inventory using dollar-value LIFO, we need to follow these steps:

1. Determine the total cost of inventory at base-year prices
Beginning inventory at base-year prices: $100,000
Purchases during the year at base-year prices: $600,000
Total cost of inventory at base-year prices: $700,000

2. Convert the ending inventory at year-end prices to base-year prices using the price index
Ending inventory at year-end prices: $126,500
Price index: 110
Ending inventory at base-year prices = Ending inventory at year-end prices / Price index 
Ending inventory at base-year prices = $126,500 / 1.10 = $115,000

3. Determine the change in the dollar value of the inventory pool
Change in the dollar value of the inventory pool = Total cost of inventory at base-year prices - Ending inventory at base-year prices 
Change in the dollar value of the inventory pool = $700,000 - $115,000 = $585,000

Therefore, the ending inventory is $116,500 ($115,000 + $1,500 rounded to the nearest dollar).

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