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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Describe the double-extension and link-chain methods used in dollar-value LIFO and when each should be used.

To determine

Explain the double-extension method and the link-chain method being used in Dollar-value LIFO, and state when they must be used.

Explanation

Cost index:

Cost index refer to the index which relates the inventory cost of current year with the base year. The cost index is usually prepared with a sample from the total inventory.

Double-extension method:

Under the double-extension method of cost index, the ending inventory of the current year are valued at the current year costs and related with the base year’s cost. The formula to calculate the cost index using the double-extension method is shown below.

Cost Index = Ending inventory at Current year costEnding inventory at Base year cost×100

The companies with similar inventory or with slight variance in the nature of the inventory may follow this method

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