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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 December 31, 2018, Kern Company adopted the dollar-value LIFO inventory method. All of Kern’s inventories constitute a single pool. The inventory on December 31, 2018, using the dollar-value LIFO inventory method was $600,000. Inventory data for 2019 are as follows:

Chapter 7, Problem 9MC, On December 31, 2018, Kern Company adopted the dollar-value LIFO inventory method. All of Kerns

Under the dollar-value LIFO inventory method, Kern’s inventory method, Kern’s inventory on December 31, 2019, would be:

  1. a. $650,000
  2. b. $655,000
  3. c. $660,000
  4. d. $720,000

To determine

Compute the cost of ending inventory under Dollar-value LIFO method for Company K.

Explanation

Cost index:

Cost index refer to the index which relates the inventory cost of current year with the base year.

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

 Compute the cost index:

Cost index = Ending inventory at Current year costEnding inventory at Base year cost×100=$780,000120×100=$650,000

Compute the cost of inventory under Dollar-value LIFO method:

Dollar-value LIFO  = (Cost of ending inventory of Previous year+(Difference in the inventory cost×1

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