[hanygameel]

Athens Corporation adopted the dollar-value LIFO method of inventory valuation on December 3 1 , Year 1 . Its inventory at that date was $1 00,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:

date Inventory at current price price index

December 3 1 , 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 3 1 , Year 3, under dollar-value LIFO?

a. $117,400

b. $145,000

c. $117,120

d. $ 116,000

[leglock]

c is the answer imo.

[leglock]

You know your inventory at end of year pricing but you need to modify it to get to LIFO inventory amount and you do this by converting end of year pricing to base year pricing and then apply the index as required.

Sorry for the poor formatting.
Essentially you want to convert dollars to base year dollars and then gross up the increment based on the change from base year dollars.
So in year 2, when you convert to base year dollars, you get 120,000. This is a 20,000 increase from yr 1 base year dollars. 100,000 of the dollars are at 1.0 and 20,000 are at 1.07. so ending LIFO yr 2 is 121,400
In year 3, when you convert to base year dollars you get 116,000. Yr 2 base year was 120,000, so theres no increment, you actually have a decrement because you are eating into your year 2. So to calculate ending LIFO yr 3, you have to account for 116,000. 100,000 is a t 1.000 and 16,000 are at 1.07(which is your year 2 index)

Ending Inv Current price / Index = Ending Inv at Base Year

Yr 1 100,000 / 1.00 = 100,000 Inventory at LIFO is 100,000

YR 2 128400 / 1.07 = 120,000 change is 20,000 from yr 1 base year cost of 100,000
Inventory at LIFO is 100,000 x 1.0
plus 20,000 x 1.07
121400

YR3 145,000 / 1.25 = 116,000 change to year 2 is negative so you eat into yr 2 Lifo layer
So ending inv year three is 100,000 * 1.0 plus 16,000 * 1.07 = 117120

[Anonymous]

Each exam I make a list of topics I run out of time to cover (or frankly give up on) so come exam day, questions on those are best educated guess and I would and then move on. Somewhat risky of course because if you get a SIM on them ur sol.

Dollar value LIFO was on that list.

[MaLoTu]

I seriously doubt that any DV LIFO question will be that hard (because it is multi-step) on the exam. It can come up though. The concept is pretty easy so I would suggest just going through the examples if you have a book.

[Author]

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