On January 1, year 1, Silver Industries Inc. adopted the dollar-value LIFO metho
ID: 2334589 • Letter: O
Question
On January 1, year 1, Silver Industries Inc. adopted the dollar-value LIFO method of determining inventory costs for financial and income tax reporting. The following information relates to this change:
Silver has continued to use the FIFO method, which approximates current costs, for internal reporting purposes. Silver's FIFO inventories at December 31, year 1, year 2, and year 3 were $100,000, $137,500, and $195,000, respectively.
The FIFO inventory amounts are converted to dollar-value LIFO amounts using a single inventory pool and cost indices developed using the link-chain method. Silver estimated that the current year cost change indices, which measure year-to-year cost changes, were 1.25 for year 2 and 1.20 for year 3.
Complete the following schedule by double-clicking in the associated shaded cell and entering the appropriate value. Enter all amounts as positive values. Enter index values to two decimal places.
Year
FIFO inventory
Current year cost change index
Link-chain cost index
Inventory at base year costs
1
$100,000
1.00
1.00
$100,000
2
137,500
1.25
[1____]
[2____]
3
195,000
1.20
[3____]
[4____]
Year
LIFO inventory layers at base year costs
Link-chain cost index
Year 2 dollar-value LIFO inventory
Year 3 dollar-value LIFO inventory
1
$100,000
1.00
$100,000
$100,000
2
[5____]
[6____]
[7____]
[8____]
3
[9____]
[10___]
[11___]
[12___]
[13___]
[14___]
Note: Please enter your responses below. Find a way to make them correspond with the number within the table and separate them with semicolons. Use the following examples for [1____], [2____], and [3____] as a reference for formulating your responses:
Example A: (1)555,000; (2)90,555; (3)1,234;
Example B: 1--555,000; 2--90,555; 3--1,234;
Example C: 1 = 555,000; 2 = 90,555; 3 = 1,234;
Be sure that your answers are clear to your Instructor with whichever method you choose.
Year
FIFO inventory
Current year cost change index
Link-chain cost index
Inventory at base year costs
1
$100,000
1.00
1.00
$100,000
2
137,500
1.25
[1____]
[2____]
3
195,000
1.20
[3____]
[4____]
Year
LIFO inventory layers at base year costs
Link-chain cost index
Year 2 dollar-value LIFO inventory
Year 3 dollar-value LIFO inventory
1
$100,000
1.00
$100,000
$100,000
2
[5____]
[6____]
[7____]
[8____]
3
[9____]
[10___]
[11___]
[12___]
[13___]
[14___]
Explanation / Answer
To calculate Chain cost index we will multiply current year year indices with last year indices.
year 1 = 1.00*1.00 = 1.00
year 2 = 1.00*1.25 = 1.25
year 3 = 1.20*1.25.=1.50
Now to calculate base year costs , we will divide fifo inventory with chain indices
year 1 = 100000/1.00 = 100000
year 2 = 137500/1.25 = 110000
year 3 = 195000/1.50 = 130000
Now to calculate layers we will deduct last year base cost from current year base inventory
year 1 = 100000-0 = 100000
year 2 = 110000 - 100000 = 10000
year 3 = 130000 - 110000 = 20000
Now to calculate lifo inventory we will multiply sepecific layers with that year cost indicices.
Year Fifo inventory Current year cost change ind. Link chain cost indices Inventory at base year 1 100000 1.00 1.00 100000 2 137500 1.25 1.25 110000 3 195000 1.20 1.5 130000