On January 1, 2018, Avondale Lumber adopted the dollar-value LIFO inventory meth
ID: 2508088 • Letter: O
Question
On January 1, 2018, Avondale Lumber adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $350,000. An internally generated cost index is used to convert ending inventory to base year. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows:
Required:
Calculate inventory amounts at the end of each year. (Round intermediate calculations and final answers to the nearest whole dollars.)
Explanation / Answer
Calculation of Inventory amount at the end of each year
1) 2018 inventory to base year prices = $438,780/1.03 = $426,000
2018 LIFO Layer = $426,000 - $350,000 = $76,000
New LIFO Layer at the end of year prices = $76,000*1.03 = $78,280
Inventory amount at the end of 2018 = $350,000+$78,280 = $428,280
2) 2019 inventory to base year prices = $451,540/1.07 = $422,000
2019 LIFO Layer liquidation = $422,000 - $426,000 = -$4,000
Inventory amount at the end of 2019 = $350,000+[($76,000-$4,000)*1.03] = $424,160
3) 2020 inventory to base year prices = $508,680/1.08 = $471,000
2020 LIFO Layer = $471,000 - $422,000 = $49,000
LIFO Layer at the end of year prices = $49,000*1.08 = $52,920
Inventory amount at the end of 2019 = $424,160+$52,920 = $477,080
4) 2021 inventory to base year prices = $548,895/1.11 = $494,500
2020 LIFO Layer = $494,500 - $471,000 = $23,500
LIFO Layer at the end of year prices = $23,500*1.11 = $26,085
Inventory amount at the end of 2019 = $477,080+$26,085 = $503,165