Accounting Creations uses the Dollar Value LIFO inventory method. For internal p

Question

Accounting Creations uses the Dollar Value LIFO inventory method. For internal purposes, the Merchandise Inventory Account is maintained at FIFO (current costs). At the end of the year, the LIFO reserve account is adjusted so inventory on the balance sheet reflects Dollar Value LIFO. You need to calculate the proper inventory balance and adjust the LIFO reserve. The price index for this year is 1.23 (enter last digit of student number). Prior year inventory records show the following calculation for 2018:

                   175,000 X 1.0 =    175,000

                  100,000 X 1.05 =   105,000

Inventory Debit balance of 425,000 and lifo reserve credit balance of 32,000. prepare the adjusting entry

Explanation / Answer

Solution:

Current Year Inventory value = 425000 (at current prices)

Value at base price = 425000 / 1.23 = 345528.46

Valuation of current year closing on Dollar LIFO -->

175000 x 1.0       = 175,000

100000 x 1.05     = 105,000

70528.46* x 1.23 = 86,750

Inventory Value = 366,750

* ( 345528.46 - 175000 - 100000)

Adjustment to LIFO Reserve required - (425000 - 366750 ) = 58,250

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