[NinaSun]

Athens Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, Year 1. Its inventory at that date was $100,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:

Date Inventory at Current Price Price Index

December 31, Year 2 $128,400 107

December 31, Year 3 145,000 125

December 31, Year 4 169,000 130

What is the cost of the ending inventory at December 31, Year 3, under dollar-value LIFO?

a. $145,000

b. $117,120

c. $116,000

d. $117,400

The answer is “b”. The explanation use price index 107 for both year 2 and year 3. Bellow is my calculation, please point out where I did wrong.

Date At base year cost At current year cost At dollar-value LIFO

January 1, Year 2 $100,000 $100,000 $100,000

Year 2 layer 20,000 (120,000-100,000) 21,400 (20,000*1.07)

December 31, Year 2 120,000 (128,400/1.07) 128,400 121,400

Year 3 layer -4,000 (116,000-120,000) -5000 (4,000*1.25)

December 31, Year 3 116,000 (145,000/1.25) 145,000 116,400

Maybe the negative layer cause a calculation difference? Can anyone explain where I am wrong and how to calculate when the layer is negative?

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