[tomq04]

Information for a firm using the dollar value (DV) LIFO retail method follows. The cost to retail (C/R) is provided along with price level indices. The data reflects the use of the method through year one.

Retail Retail DV LIFO

Layer Base Index Current C/R Cost

Base $200 1.00 $200 .40 $80

year one 80 1.10 88 .34 $30

For year two, ending inventory at retail (by count) totaled $450. The ending price-level index for the year was 1.15. The cost-to-retail ratio was .42. What is the ending inventory for financial reporting purposes for this firm?

A. $164

The DV LIFO retail process applies the DV LIFO method to retail dollars, and then deflates the retail layer added, now reflecting current prices, to cost, using the cost-to-retail ratio. The calculations are:

Ending inventory, retail, at base = $450(1.00/1.15) = $391

Increase in retail, current = $111(1.15/1.00) = $128

Increase in cost = $128(.42) = $54

Ending inventory at cost = ($80 + $30) + $54 = $164

I didn’t show the other answers, A was correct and I cannot follow this logic whatsoever.

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