In 2015, Martin Company first adopted the dollar value LIFO method. Presented be
ID: 2572873 • Letter: I
Question
In 2015, Martin Company first adopted the dollar value LIFO method. Presented below is information related to Martin (round to the nearest dollar). Date Ending Inventory, End of year prices Price Index 12/31/2015 $200,000 100 12/31/2016 $300,000 125 12/31/2017 $350,000 160 Instructions: (1) Compute the ending inventory for Martin Co. for each year 2015, 2016 and 2017, using the dollar-value LIFO method. (2) Compute the LIFO reserve and record the necessary journal entries to adjust inventory to dollar value LIFO for each year (2015 to 2017).
Explanation / Answer
1. Computation of ending inventory for Martin co.
Date
Inventory at Base Year Cost
Price index %
Inventory at base year prices
Year of Layer
Inventory at added year cost
Inventory (Dollar Value LIFO)
12/31/2015
$200,000
100
$200,000
Base Year
$200,000
$200,000
12/31/2016
$300,000
125
300,000/ 125% = $240,000
Base Year
$200,000
2016, $240,000-200,000 = 40,000 at 125%
40,000*125% = 50,000
$250,000
12/31/2017
$350,000
160
350,000/ 160% = $218,750
Base Year
$200,000
2016, $218,750-200,000 = 18,750 at 125%
18,750*125% = 23,437.50
$223,437.50
(2) Compute the LIFO reserve and record the necessary journal entries to adjust inventory to dollar value LIFO for each year (2015 to 2017).
Date
Account title
Debit
Credit
12/31/2015
No entry required
12/31/2016
Cost of goods sold
Allowance to reduce inventory to LIFO
($300,000- $250,000)
50,000
50,000
12/31/2017
Cost of goods sold
Allowance to reduce inventory to LIFO
($250,000- $223,438)
26,562
26,562
Date
Inventory at Base Year Cost
Price index %
Inventory at base year prices
Year of Layer
Inventory at added year cost
Inventory (Dollar Value LIFO)
12/31/2015
$200,000
100
$200,000
Base Year
$200,000
$200,000
12/31/2016
$300,000
125
300,000/ 125% = $240,000
Base Year
$200,000
2016, $240,000-200,000 = 40,000 at 125%
40,000*125% = 50,000
$250,000
12/31/2017
$350,000
160
350,000/ 160% = $218,750
Base Year
$200,000
2016, $218,750-200,000 = 18,750 at 125%
18,750*125% = 23,437.50
$223,437.50
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.