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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1 of Year 1, Dorso Company adopted the dollar-value LIFO method of inventory costing. Dorso’s December 31 ending inventory records are as follows:

Year 1: Current cost, $20,000; Index, 100 Year 2: Current cost, $33,600; Index, 120

Using the dollar-value LIFO method, compute Dorso’s December 31 ending inventory for Year 2.

To determine

Calculate the ending inventory using dollar value LIFO method for Year 2.

Explanation

Dollar-value LIFO method: In this method, the valuation of inventory is calculated on the monetary value of units instead of quantity of units held. The dollar value LIFO method uses the cost indexes to convert the current cost of inventory to the base year cost.

Calculate the dollar value of LIFO ending inventory:

Dollar-value LIFO ending inventory}=(Base-year ending inventory)+(Increase at current costs)=$20,000+$9,600=$29,600

Therefore, the ending inventory for Year 2 using dollar value LIFO method is $29,600.

Working note 1: Calculate the costs of inventory at base year:

Given: The current cost of inventory of Year 2 is $33,600 and the cost index for Year 1 is 100. The cost index for year 2 is 120

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