Question

12. On January 1, 2018, Sam Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $101,900. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below: Year-end 2018 Ending inventory at year-end costs $131,985 151,360 161,580 2019 Cost Index 1.05 1.10 1.20 2020 In determining the inventory balance should Sam report in its 12/31/2019 balance sheet: A. An additional layer of $25,090 is added to the 1/1/2019 balance B. An additional layer of $24,090 is added to the 1/1/2019 balance. C. An additional layer of $13,090 is added to the 1/1/2019 balance. D. None of these answer choices are correct.

Answer 1

Ending inventories: A Date 1/1/2018 2 Ending inventory Inventory layers Ending inventory at base year cost Inventory at base year cost converted to cost DV LIFO cost $101,900 $101,900 Base $101,900 Inventory at January 1, 2018 S101,900 12/31/2018 $125,700 $101,900 $23,800 Ending Inventory 2018 Base 2018 $101,900 $24,990 $126.890 9 12/31/2019 $137,600 $101,900 $23,800 $11,900 Ending Inventory 2019 Basel 2018 2019 $101,900 $24,990 $13,090 12 S139,980 14 12/31/2020 S134.650 $101.900 $23,800 $8,950 Ending Inventory 2020 Basel 2018 2019 $101.900 $24.990 $9,845 16 $136.735 The balance at 1/1/2019 would be equal to balance at 12/31/2018 i.e. $126,890. Thus, while calculating the inventory at 12/31/2019, an additional layer of $13,090 is added (highlighted with yellow color). Thus, the correct option is 'C. An additional layer of $13,090 is added to the 1/1/2019 balance, Calculations are shown below: A Ending inventory Inventory at base year Inventory layers 1 Date at base year cost converted to cost 2 43101 101900 =B2 Base=C2*1 Inventory at January 1, 2018 Ending inventory DV LIFO cost =E2 5 43465 =131985/1.05 =C2 Base=C5*1 =B5-C5 2018 =C6*1.05 Ending Inventory 2018 =SUME5:E6) 43830 =151360/1.1 1=C5 Base =C9*1 |=C6 2018 =C10*1.05 =B9-C9-C10 2019 =C11*1.1 Ending Inventory 2019 =SUM(E9:E11) 14 44196 =161580/1.2 =C9 Base=C14*1 =C10 2018 =C15*1.05 =B14-C14-C15 2019 =C16*1.1 Ending Inventory 2020 I=SUME14:E16)