Question

Why did we multiply 25000*1.15 in part (b) but we didn’t have a multplication in part (a)?

valie LIFO 692,600 98,350 December December Instructions Calculate the index used for 2018 y rercreu e avove resuns Ea21L04) (Dollar-Value LIFO) The dollar-value LIFO method was adopted by Enya Corp.c tory on that date was $160,000. On December 31, 2017, the inventory at prices existing on that date amounted to $140,000. The price level at January 1, 2017, was 100, and the price level at December 31, 2017, was 112. January 1, 2017. Its inven- on Instructions (a) Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO method. (b) On December 31, 2018, the inventory at prices existing on that date was $172,500, and the price level the inventory on that date under the dollar-value LIFO method. was 115. Compute E&-22 104) D" åre the lower costs. EXERCISE 8-21 (a) 12/31/17 inventory at 1/1/17 prices, $140,000+1.12 Inventory 1/1/17 Inventory decrease at base prices $125,000 160,000 $35,000 Inventory at 1/1/17 prices Less decrease at 1/1/17 prices Inventory 12/31/17 under dollar-value LIFO method $160,000 35,000 $125,000 12/31/18 inventory at base prices, $172,500 (b) 12/31/17 inventory at base prices Inventory increment at base prices 1.15 $150,000 125.000 $ 25,000 Inventory at 12/31/17 Increment added during 2018 at 12/31/18 prices, $25,000 X 1.15 Inventory 12/31/18 $125,000 28,750 $153,750

Answer 1

Last In, First Out (LIFO)-

Definition: An accounting method for inventory and cost of sales in which the last items produced or purchased are assumed to be sold first; allows business owner to value inventory at the less expensive cost of the older inventory; typically used during times of high inflation

The LIFO method of accounting assumes that you'll sell the most recently purchased inventory first. For instance, suppose you bought 10 ceiling fans a year ago at $30 each. A week ago, you purchased a second lot of 10 ceiling fans, but now the price has gone up to $50 each. By using the LIFO method, you sell your customers the $50 ceiling fans first, which allows you to keep the less expensive units (in terms of your inventory cost) in inventory.

Thus, from the above definition your query could be answered ,in part (a) there is a decrease in inventory which means inventory left is of the date 1/1/17,where as in the second part (b) there is an increase in inventory which means company had purchase more inventory at price of $115 .

therefore,we multiply 25000*1.15 in part (b) but we didn’t multiply in part (a).