[kschepp789]

Hey guys. I am new to the forum. For some reason, I can’t figure out the logic behind his Dollar Value LIFO problem. It seems pretty simple, but for some reason I can’t seem to justify this logic in laymen terms to myself in order to remember for future questions.

Walt Co. adopted the U.S. GAAP dollar-value LIFO inventory method as of January 1, when its inventory was valued at $500,000. Walt’s entire inventory constitutes a single pool. Using a relevant price index of 1.10, Walt determined that its December 31 inventory was $577,500 at current year cost, and $525,000 at base year cost. What was Walt’s dollar-value LIFO inventory at December 31?

Choice “b” is correct. At base year costs, an additional layer of $25,000 ($525,000 base year cost at 12/31 less $500,000 base year cost at 1/1) was added. This layer was acquired for $27,500 [$25,000 x 1.10]. Dollar value LIFO inventory at year end equals $527,500 [$500,000 beginning inventory plus $27,500 additional layer].

For some reason, to me, adding the adjusted $27,500 to the original $500,000 doesn’t seem right, since the $500,000 is valued at the base-year cost. Wouldn’t the $500,000 need to be adjusted also? Or, do you only revalue the inventory that was added AFTER the change to dollar-value LIFO???

Can someone explain this to me? Not sure why I’m having issues with such a seemingly easy problem.

Thanks so much for the help!