Question

On January 1, 2018 Avondale Lumber adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $335.000. An internally generated cost index is used to convert ending inventory to base year. Year-end Inventories at year-end costs and cost indexes for its one inventory pool were as follows: Year Ended December 31 2018 2019 2020 2021 Inventory Year-End Costs $428.400 440, 360 495.000 533,360 Cost Index Relative to Base Year) 1.05 1.09 1.10 Required: Calculate inventory amounts at the end of each year. (Round Intermediate calculations and final answers to the nearest whole dollars.) Inventory Layers Converted to Base Year Cost Inventory Layers Converted to Cost Ending Inventory DVL Cost Inventory at Year End Cost Date Year-End Cost Index Inventory Layers Inventory Layers at Base Year Cost Inventory Layers at Base Year Cost Year-End Cost Index Converted to Cost 01/01/2018 12/31/2018 12/31/2019 12/31/2020 Base Base 2018 Base 2018 Base 2018 2020 Base 2018 2020 20211 12/31/2021

Answer 1

Calculation of inventory amounts at the end of each year (Amounts in $)

	Inventory Layers Converted to Base Year Cost					Inventory Layers Converted to Cost						Ending Inventory DVL Cost
Date	Inventory at Year-End cost		Year-End Cost Index		Inventory Layers at Base Year Cost		Inventory Layers at Base Year Cost		Year-End Cost Index	=	Inventory Layers Converted to Cost
01/01/2018	335,000	/	1.00	=	335,000	Base	335,000	*	1.00	=	335,000	335,000
12/01/2018	428,400	/	1.05	=	408,000	Base	335,000	*	1.00	=	335,000
						2018	73,000	*	1.05	=	76,650	411,650
12/31/2019	440,360	/	1.09	=	404,000	Base	335,000	*	1.00	=	335,000
						2018	69,000	*	1.05	=	72,450	407,450
12/31/2020	495,000	/	1.10	=	450,000	Base	335,000	*	1.00	=	335,000
						2018	69,000	*	1.05	=	72,450
						2020	46,000	*	1.10	=	50,600	458,050
12/31/2021	533,360	/	1.13	=	472,000	Base	335,000	*	1.00	=	335,000
						2018	69,000	*	1.05	=	72,450
						2020	46,000	*	1.10	=	50,600
						2021	22,000	*	1.13	=	24,860	482,910

Working Notes:-

1) The inventory layers at base year increase from the prior year is calculated for each year (i.e. for calculating inventory on 12/31/2018, increase of $73,000 (408,000-335,000) is multiplied by year end cost index of 1.05).

2) There is a decrease in inventory at base prices in 2019 from $408,000 to $404,000. Hence only total increase of $69,000 ($404,000-335,000) has been considered for calculating year end inventory of 2019.