Question

Dent Company manufactures one product. On December 31, 2005, Dent adopted the dollar-value LIFO inventory method.

Inventory data for the years following the base-year are:

Inventory at Price index

Year year-end prices (base year 2005)

2015 $270,000 1.00

2016 378,000 1.05

2017 392,000 1.15

2018 475,000 1.25

Required: Please show all calculations (in formula form if desired)

1. Compute the ending inventory at December 31, 2016, 2017, and 2018, using the dollar-value LIFO method for each year. Clearly indicate the inventory amount that will be reported on the Balance Sheet at 12/31/16, 12/31/17, and 12/31/18.

2. What is the LIFO Reserve amount for 12/31/17? What is the LIFO effect for 12/31/17?

Answer 1

The solution to the above two questions have been given in a tabular format in the attachments below:

1. Computation of Ending Inventory at December 31, 2016, 2017 and 2018 using dollar-value Lito method Year Inventory at End-of-year Prices Price Index Inventory at Base - year Prices Base Layers Price Index & Value LIFO Toral $ Value I LIFO LIFO Reserve $ 270,000 1-00 $ 270,000 $270,000 1.00 $ 270,000 $ 270,000 2015 (Base Year) $13,500 2016 $364,500 $378,000 1.05 $270,000 $ 94,500 1. DO 1.05 $ 300,000 $270,000 (378,000x $ 90,000 1.05) (360,000 240,000) 1.00 $244.414 2017 $ 47,586 $ 392,000 $ 270,000 $ 74,414 115 I $340,870 (392,000* 1 (rounded off) $ 270,000 $ 70,870 (340,870 - 270,000) since $70,870 is $90,000, Price Index of $40,000 woud apply as per LIFO $ 380,000 125 2018 $475,000 1.00 1.05 1-25 $ 270,000 $ 90,000 $ 20,000 (380,000- Popce -90,000) $ 270,000 $ 94,50ony $ 384,500 $ 25,000 $ 85,500 475,000 1.25 since the increase in Price Index is beyond $40,000, for the balance increase the latest price Index will be used as per

Inventory Amo Inventory story Amount to be reported in the Balance Sheet at December 31 2016 2017 2018 $378,000 $392,000 $475,000 LIFO Reserve (13,500) (47,586) (85,500) (Allowance to reduce Inventory to Lifo) $389,500 $ 344,414 Ending Inventory $364,500 2. LIFO Reserve for Becember 31, 2017 and its effect Based on the computation in (1) above, the Lifo Reserve for 12/31/2017 is $ 47,586. The Lifo effect for 12/31/2017 is that $384,500 to $344,414 i e- the inventory cost of $392,000 will is allowed to be reduced by the amount of Liko Reserve of $ 47,586.