Dollar Value LIFO, LIFO Reserve. Total Color, Inc. manufactures and distributes

Question

Dollar Value LIFO, LIFO Reserve. Total Color, Inc. manufactures and distributes house paints. Total Color uses the dollar-value LIFO method. Information for 2014,2015, and 2016 is presented in the following table. Year 2014 Base Year 2015 2016 Inventory - FIFO $356,000 $379,700 414,000 The cumulative price indices for 2014,2015, and 2016 respectively are 1.0000, 1.0230, and 1.0537 Required» a. Compute the company's ending inventory using dollar-value LIFO for each year, Round to the nearest b. Prepare the journal entry required to adjust the LIFO reserve for each year

Explanation / Answer

Answer a Computation of company's ending inventory using dollar value LIFO Step 1 Calculation of Inventory at base year prises and changes in inventory from prior year Year ended December 31 Inventory at year end costs Price Index Inventory at base year prises Change from prior year A B C B/C D 2014 $356,000 1.0000 $356,000 $0 2015 $379,700 1.0230 $371,163 $15,163 2016 $414,000 1.0537 $392,901 $21,738 Step 2 Computation of inventory amounts at the end of each year December 31,2015 $356000 @ 1 $356,000 $15163 @ 1.0230 $15,512 Ending Inventory as on Dec.31,2015 $371,512 December 31,2016 $356000 @ 1 $356,000 $15163 @ 1.0230 $15,512 $21738 @ 1.0537 $22,905 Ending Inventory as on Dec.31,2016 $394,417 Answer b LIFO reserve as on Dec.31,2015 = FIFO Inventory cost - LIFO inventory cost = $379700 - $371512 = $8,188 LIFO reserve as on Dec.31,2016 = FIFO Inventory cost - LIFO inventory cost = $414000 - $394417 = $19,583 Journal entry to record LIFO reserve as on Dec.31,2015 Journal   Date Account Titles Debit Credit Dec.31,2015 Cost of goods sold $8,188 LIFO reserve $8,188 Journal entry to record LIFO reserve adjustment as on Dec.31,2016 Journal   Date Account Titles Debit Credit Dec.31,2015 Cost of goods sold $11,395 LIFO reserve $11,395 As the opening LIFO inventory reserve was $8188, the adjustment to the reserve, and the LIFO effect is $19583 - $8188 = $11,395

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