Question

E8.4B (L0 4)

(Dollar-Value LIFO)

The following information relates to James Company:

Date Ending Inventory (End- of-Year Prices) Pric e Inde 100 $154,0 00 196,768 104 205,656 114 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 228,448 118 211,200 120

(a) Use the dollar-value LIFO method to compute the ending inventory for James Company for 2016 through 2020.

(b) Find the LIFO reserve and LIFO effect for each year.

(c) Prepare the necessary journal entries to record the LIFO effect in each period.

> Nice Work. Perfect demonstration of the process to calculate the dollar value-Lifo

Answer 1

(a)

Date	Ending Inventory (A)	Price Index (B)	Ending Inventory Base Year               [C = A × 100/B]	Change in Ending Inventory
Dec. 31, 2016	$154,000	100	$154,000	-
Dec. 31, 2017	$196,768	104	$189,200	$35,200
Dec. 31, 2018	$205,656	114	$180,400	($8,800)
Dec. 31, 2019	$228,448	118	$193,600	$13,200
Dec. 31, 2020	$211,200	120	$176,000	($17,600)

Compute dollar value of ending inventory:
Dec. 31, 2016:
12/31/2016	$154,000	1	$154,000
Dec. 31, 2017:
12/31/2017	$154,000	1	$154,000
	$35,200	1.04	$36,608
			$190,608
Dec. 31, 2018:
12/31/2018	$154,000	1	$154,000
	$26,400	1.04	$27,456
			$181,456
Dec. 31, 2019:
12/31/2019	$154,000	1	$154,000
	$26,400	1.04	$27,456
	$13,200	1.18	$15,576
			$197,032
Dec. 31, 2020:
12/31/2019	$154,000	1	$154,000
	$22,000	1.04	$22,880
			$176,880

______________________________________________________________

(b) Find the LIFO reserve and LIFO effect for each year

Assume Standard cost method  inventory is higher than the LIFO inventory:

Dec. 31, 2016:

LIFO reserve = Standard cost Inventory - LIFO Inventory

= $154,000 - $154,000

= $0

______________________________

Dec. 31, 2017:

LIFO reserve = Standard cost Inventory - LIFO Inventory

= $196,768 - $190,608

= $6,160

LIFO Effect:

LIFO effect = LIFO Reserve - Beginning balance

= $6,160 - $0

= $6160

_________________________________

Dec. 31, 2018:

LIFO reserve = Standard cost Inventory - LIFO Inventory

= $205,656 - $181,456

= $24,200

LIFO Effect:

LIFO effect = LIFO Reserve - Beginning balance

= $24,200 - $6,160

= $18,040

_____________________________________________

Dec. 31, 2019:

LIFO reserve = Standard cost Inventory - LIFO Inventory

= $228,448 - $197,302

= $31,146

LIFO Effect:

LIFO effect = LIFO Reserve - Beginning balance

= $31,146 - $24,200

= $6946

______________________________________________

Dec. 31, 2020:

LIFO reserve = Standard cost Inventory - LIFO Inventory

= $211,200 - $176,880

= $34,320

LIFO Effect:

LIFO effect = LIFO Reserve - Beginning balance

= $34,320 - $31,146

= $3174

___________________________________________________

(c)  Prepare the necessary journal entries to record the LIFO effect in each period

Date	Account	Debit	Credit
Dec. 31, 2017	Cost of good sold	$6,160
	Allowance for reduce inventory to LIFO		$6,160
Dec. 31, 2018	Cost of good sold	$18,040
	Allowance for reduce inventory to LIFO		$18,040
Dec. 31, 2019	Cost of good sold	$6,946
	Allowance for reduce inventory to LIFO		$6,946
Dec. 31, 2020	Cost of good sold	$3,174
	Allowance for reduce inventory to LIFO		$3,174