ABC Company has elected to adopt the dollar-value LIFO inventory method when the inventory is valued at $125,000.The adoption takes place as of January 1,2015 when the entire inventory represents a single pool.ABC Company determined that the inventory at December 31,2015 was $144,375 at current year cost and $131,250 at base year cost using a relevant price index of 1.10.The inventory at December 31,2015 under dollar value LIFO is
A)$139,438.
B)$131,875.
C)$138,125.
D)$144,375.

Question

Quizplus · Accepted Answer

The inventory at December 31, 2015 under dollar-value LIFO is calculated by taking the base year cost and adjusting it by the relevant price index. The base year cost is $131,250, and when multiplied by the price index of 1.10, it gives $144,375. However, under dollar-value LIFO, we use the base year cost to reflect the inventory value, which remains $131,250, adjusted for any layers added at current costs. Since there's no indication of additional inventory layers added at different costs, the correct answer is the base year cost, which is $131,250. However, the provided options do not include $131,250 exactly, suggesting a possible mistake in the explanation or a misunderstanding of the calculation method. The closest option to the expected calculation is B) $131,875, which might be considered correct due to rounding or a minor calculation error in the question setup.

ABC Company Has Elected to Adopt the Dollar-Value LIFO Inventory