Question

Kingston Company uses the dollar-value LIFO method of computing inventory. An external price index is used to convert ending inventory to base year. The company began operations on January 1, 2021, with an inventory of $150.000. Year-end inventories at year-end costs and cost indexes for its one inven Indexes for its one inventory pool were as follows Year Ended Ending Inventory Cost Index December 31 at Year-End Costs (Relative to Base Year) 2021 $200,000 1.08 2022 245,700 1.17 2023 235,980 1.14 2024 228,800 1.10 Required: Calculate inventory amounts at the end of each year.

Answer 1

ANSWER

K Company uses the DVL method of computing inventories. The operations were started on 1 January 2021 with inventory of $ 150,000. A B C D E F G H Inventory Ending Ending Inventory layers Ending inventory at inventory layer at converted to Inventory year end Cost at base base year Acquisition at DVL 1 Date cost index year cost cost year cost cost 2 1-Jan-21 150,000 1.00 150000 Base $150,000 $150,000 $150,000 at 4 31-Dec-21 200,000 1.08 185185 $188,000 Base 2021 $150,000 $35,185 $150,000 $38.000 7 31-Dec-22 245,700 1.17 210000 $217,033 Base 2021 2022 $150,000 $35,185 $24,815 $150,000 $38,000 $29,034 11 31-Dec-23 235,980 1.14 207000 Base $213,523 $150,000 $35,185 $21,815 $150,000 $38,000 $25,524 14 15 31-Dec-24 228,800 1.10 208000 $214,623 Base 2021 2022 2023 $150,000 $35,185 $21,815 1,000 $150,000 $38,000 $25,524 $1,100

There is an inventory decline in 2023 from $210,000 to $ 207,000 at base prices. So here no new layer is added but the most recent layer of 2022 is reduced to 3,000 Formulas used in the above calculation are shown as below. Ending inventory at year end cost 2 150000 Ending inventory at Cost index base year cost 1 =B2C2 Base Inventory layers converted to Inventory layer at Acquisition year base year cost cost =D2 =F2*C2 Ending Inventory at DVL cost =G2 4 200000 1.08 =B4/C4 =SUM(G4:45) Base 2021 -D2 =D4-D2 =F4*C2 =F5*C4 7 245700 1.17 =B7/C7 =SUM(G7:49) Base 2021 2022 -D2 =F5 =D7-D4 =F7*C2 =F8*C4 =F9*C7 10 11 235980 1.14 =B11/C11 F7 =SUM(G11 G13) Base 2021 2022 F8 =F9-(D7-D11) =F11*C2 =F12*C4 =F13*C7 13 15 228800 1.1 =B15/C15 =SUM(G15 G18) 16 Base 2021 2022 2023 -F11 =F12 =F13 =D15-D11 =F15*C2 =F16*C4 =F17*C7 =F18*C15 18

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