ExpertHard1 markMultiple Choice
CPA · Question 17 · Area 2: Select Accounts
A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?
A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?
Answer options:
A.
$231,000
B.
$220,000
C.
$221,000
D.
$210,000
How to approach this question
1. Convert End Inv to Base Year prices (divide by index). 2. Compare to Beginning Base Year Inv. 3. Identify layers created. 4. Multiply each layer by its specific year's index. 5. Sum layers.
Full Answer
C.$221,000✓ Correct
C
Step 1: Convert to Base: $231,000 / 1.05 = $220,000. Step 2: Identify Layer: $220,000 - $200,000 = $20,000 increase. Step 3: Value Layer: $20,000 * 1.05 = $21,000. Step 4: Total Inventory = Base ($200,000) + Layer ($21,000) = $221,000.
Common mistakes
Applying the index to the total base year cost instead of just the layer.
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