Question

Brief Exercise 8-9

Headland, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow.

Year Ended December 31		Inventory at Current-Year Cost		Price Index
2016		$19,500		100
2017		21,924		108
2018		25,650		114

Compute the value of the 2017 and 2018 inventories using the dollar-value LIFO method.

		2017		2018
Inventory under LIFO		$		$

Answer 1

Year Ended December 31	Inventory at Current Year Cost	Price Index	Year end Inventory at its base price	Change in Real value of Inventory (increase)
2016	$19,500	100	$19,500	Nil
2017	$21,924	108	$20,300	$800
2018	$25,650	114	$22,500	$2,200

Calculation of Inventory for the year ended 2017 and 2018 using Dollar Value Inventory Method
2017 Inventory at its base price	$20,300/1.08	$20,300
2016 Inventory at its base price	$19,500/1.00	$19,500
Therefore, Increase in Inventory	$20,300 - $19,500	$800
Inventory of 2017 under LIFO Method	First Layer : $19,500 x 1.00 = $19,500 Second Layer : $800 x 1.08 = $864 Total = $20,364	$20,364
2018 Inventory at its base price	$25,650/1.14	$22,500
2017 Inventory at its base price	$21,924/1.08	$20,300
Therefore, Increase in Inventory	$22,500 - $20,300	$2,200
Inventory of 2018 under LIFO Method	First Layer : $19,500 x 1.00 = $19,500 Second Layer : $800 x 1.08 = $864 Third Layer : $2,200 x 1.14 = $2,508 Total = $22,872	$22,872