Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had a cost inventory of $600,000. Its inventory as of December 31, 2009, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2009?

Question

Quizplus · Accepted Answer

To calculate the DVL inventory on December 31, 2009, we need to convert the year-end inventory at current costs to base-year costs using the cost index.

Base-year cost of December 31, 2009, inventory = $667,800 ÷ 1.06 = $630,000

Then, we need to compare the base-year cost of the December 31, 2009, inventory with the base-year cost of the beginning inventory ($600,000) to determine the increase in cost level.

Cost increase = $630,000 - $600,000 = $30,000

Finally, we can calculate the DVL inventory by expressing the December 31, 2009, inventory at base-year cost and reducing it by the cost increase:

DVL inventory = $630,000 - $30,000 = $600,000 + $636,000 = $631,800.

Therefore, the correct answer is B) $631,800.

Ramen Inc Adopted Dollar-Value LIFO (DVL) as of January 1, 2009