[Whatdidyou]

Hello. I think this answer is wrong – but could be easily fixed if the wording to the question were phrased differently. Let me know what you think:

In January, XYZ adopted the dollar value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base year prices, and prices increased 10%. The designated market value of XYZ’s inventory exceeded its cost at year end. What amount of of inventory should XYZ report in its year end BS?

I thought that this would be the answer:

$30,000 x ($83,000*/80,000) + 50,000 = $81,125

Actual Answer: $83,000

Year 1 layer of $30,000 converted to dollar value LIFO using the price index PLUS the initial base year cost that is still in inventory.

I understand what they did – they just treated the 10% price increase AS the price index. But that doesn’t make sense.

I thought that meant that the Y1 layer base year cost would be 30,000 and it’s current year cost would be 33,000 (30,000 x 1.10), and then I could use those numbers in determining the price index (as seen above) to convert the Y1 layer to dollar value LIFO and then add the base year inventory to determine EI, but that’s not how they did it. argh!

REG - Passed!!
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Study Materials: Becker basic course

[Luka0712]

12/31
Base year cost = 50,000 + 30,000 = 80,000
Current year cost = 80,000 x (1+10%) = 88,000
Year 2 price index = 88,000/80,000 = 1.1
LIFO layer added = 30,000 x 1.1 = 33,000
Ending inventory = 50,000 + 33,000 = 83,000

[Author]

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